Batton Change: What Comes After Exceptional

Over the past two decades, we watched Steve Jobs introduce the iPhone and Apple go on to sell more than three billion of them. A small rectangle of glass did more than revolutionise communication; it quietly reorganised daily life. Laid end to end, those phones would circle the Earth more than eleven times. Yes, eleven.

Apple’s dominance has been extraordinary. It is a near perfect case study in American ingenuity, though it is far from a one off. Plenty of other corporate success stories follow a similar script, helping to explain why the S&P 500 has been the world’s standout equity market over the same period.

For most of that time, investing has felt like a relay race in which the US has refused to tire. It ran hard, ran fast and kept hold of the baton far longer than anyone expected. Eventually, though, every runner slows. 

In 2025, markets were reminded of that reality. US equities still produced respectable returns, yet the S&P 500 finished behind its major global peers for the first time in two decades. A reminder that leadership is earned repeatedly, not permanently owned.

Timing matters because the global economy is entering a period of profound change. Artificial intelligence (AI) is set to reshape productivity, business models and competitive advantage on a scale that few technologies have matched. The United States enters this transition from an apparent position of strength, home to many of the world’s most influential AI companies. It is tempting, therefore, to assume that AI will simply extend US leadership further still.

History, however, counsels caution. Major technological shifts rarely arrive smoothly or predictably. Progress tends to lurch rather than glide; adoption comes in bursts, not waves; and competitive positions can change with surprising speed. The fact that, among the so‑called Magnificent Seven, only Nvidia and Alphabet outperformed the S&P 500 last year is a useful reminder that even the most powerful themes can rest on remarkably narrow shoulders.

After years of watching the Magnificent Seven deliver with impressive consistency, it is easy to forget that expectations keep rising while tolerance for disappointment shrinks. When results need to be exceptional just to stand still, the margin for error becomes thin. In that environment, concentration can quietly shift from strength to strain. Leadership does not need to collapse to disappoint. It simply needs to be less perfect than before.

Competition around the AI theme will only intensify, which makes regional diversification as important now as it has ever been. When one market becomes tightly bound to a small group of companies and a single dominant story, broadening exposure across other regions and return drivers becomes a sensible way to reduce reliance on one outcome going exactly to plan.

That does not mean abandoning the US opportunity. It means building portfolios that can cope if progress proves uneven and leadership evolves rather than repeats.

Unsurprisingly, investors are beginning to look elsewhere with renewed interest. Not because the US has lost its appeal, but because other regions are less crowded, more attractively priced and supported by a wider mix of drivers. In many cases, valuations are lower just as fundamentals are improving.

Europe continues to trade at a meaningful discount. That matters if inflation pressures continue to ease, policy support gains traction and corporate balance sheets strengthen. A market that is cheaper and less concentrated does not require flawless execution to deliver reasonable outcomes.

Emerging markets offer another angle. In 2025, they enjoyed their strongest rally in more than fifteen years, supported by attractive valuations, currency stability and improving fundamentals. Their growth drivers are often structural, offering exposure to favourable demographics and rising consumption at a fraction of US market valuations.

Japan, meanwhile, is quietly becoming harder to ignore. Policy reforms are improving capital discipline, shareholder returns and governance standards. These changes are feeding through into higher profitability and better capital efficiency. Combined with a gradual opening of corporate culture to outside investors, Japan is benefiting from forces that can build steadily over time.

Last year served as a useful reminder that markets rarely move in straight lines and that leadership changes are part of the cycle. The years ahead will bring rapid progress, along with moments of excitement and moments that test conviction.

The most resilient portfolios are built on balance rather than blind faith in a single narrative. They acknowledge the enduring strengths of the US, including its central role in the AI transition, while also embracing opportunities where other regions are undervalued, reforming or benefiting from structural tailwinds of their own. 

Over the next two decades, the leaderboard will change again, just as it always has. The challenge is not to predict the precise moment the baton changes hands, but to make sure portfolios are fit enough to keep running when it does.