Should You “Water Down America” When Rebalancing at EOY?

Industry experts weigh in on if investors actually benefited from the "Sell America" trade this year. ETF.com's Dave Nadig is joined by Ben Johnson, CFA, Head of Client Solutions, Asset Management at Morningstar; Todd Sohn, Senior ETF and Technical Strategist for Strategas Securities; and Tony Dong, Founder and Owner of ETF Portfolio Blueprint. Through the lens of model portfolios and recent market data, the group discusses the risks of extreme U.S. tech concentration and the logistical friction of rebalancing. The follow is a transcript of their conversation.

Transcript

Nadig: Lots to talk about the Sell America trade being wrong this year, which, you know, look, I didn't do anything to my portfolio. I got a piece going up on this this week. I ran a model portfolio based on the actual Bank of America fund manager survey which had the big call in April to sell America. And I tried to match what they actually said in their survey, and I came up with this portfolio on the right which is sort of a stay-the-course portfolio, 50% U.S. equity, 15% international equity—pretty much what my fund, my portfolio sort of looks like. And then on the right, what would a Sell America portfolio look like—again, based on what they were reporting institutions did. 

And then you run that math and it turns out, low and behold, not that surprising, Sell America was actually a pretty profitable trade if you put it in place at the beginning of the year and or in April and sort of held it to now. But that being said, I look at that Sell America portfolio and I wouldn’t buy it right now. I wouldn’t only want to be 20% in U.S. equities. I wouldn’t want to be, you know, 15% in gold — seems like a lot — but boy, did all of that work this year. 

What are your guys’ thoughts on this narrative? Is this just purely a media hype? We know some folks did do this trade, right? We can go look at some Nordic sovereigns and see that they unloaded equities and bought gold and bought international. So the trade did happen. Was this just all buzz or do you think that the average U.S. investor ignored all of this and stayed the course?

Sohn: Dave, I'll throw in my hat. Number one, this is very cool, Dave. I really like when you do this stuff. I don’t think you can "Sell America" if you’re a fiduciary, right? You just can't do it. But do I think there’s a big problem right now in the amount of exposure that folks, advisors, whoever it might be, institutions have to American equities? That might be the bigger problem. 60, 65% of global market funds, right, total world funds. Tech is 35% of the S&P—like all the concentration stuff. And this is not necessarily about how many stocks are rising, it’s more just, hey, I have a lot of the same stuff. And so I think maybe it’s not sell America, but maybe water down America? Right? You know?

Johnson: I mean, if you look at the flows, it’s like, yeah, rebalance at the margin away from America given America’s recent relative performance. And interestingly, like we saw a record year and you captured some of the subcategories, Todd, in your earlier chart, but we saw a record year in international equity ETFs at large. So it wasn’t as though investors were selling America. I think maybe they were at the margin beginning to rebalance away and that’s just something you’re going to do come hell or high water. I think at its core, it’s a spicy way to like position your year-ahead outlook versus somebody else’s and we’re once again at that time of year where everybody’s pretending like they know anything that’s going to happen in the next 12 months and we look back 12 months from now and realize once again that no one has any clue.

Nadig: Tony, I see you nodding over there. Where are you on the Sell America trade?

Dong: I think there’s definitely been some change from retail, but it’s not just like, you know, oh I’m going to abandon VTI and go into say EFA or something like that. They’re not buying the EAFE. They’re not buying broad emerging markets. I’m seeing on, just anecdotally on social media, I’m seeing a lot of targeted thematic exposure to ex-America segments. So very hot throughout 2025, European defense, EUAD, massive inflows, you know, stellar performance and stuff. We’re seeing a lot of that.

Conversely, I’ve seen some international segments struggle a lot. So luxury stuff like LVMH, Ferrari, you know, L'Oreal – it’s been in the, Ferrari’s been in the toilet. I think it’s hit a 34% drawdown, one of its biggest in recent years. So there’s a lot of nuance to that. I do think that prior to this, the average U.S. investor had a massive home country bias. You look at VT where the U.S. is what, like 60-something market cap weight? Right? Your average U.S. investor’s got like 70 or 80% just from what I saw from Vanguard. So maybe it did prompt a reassessment of their asset allocation. 

As for whether it sticks, and no my angle here’s just on tax efficiency. You know, the Sell America portfolio did perform. I’d like to see the after-tax returns on that just — I don’t think it’ll be that bad.

Nadig: Oh, it would be absolutely abysmal because we know from the latest — it's not on this chart — but like the November, the October BofA FMS actually has an overweight on U.S. equity. So they completely flipped back by the time they got to the end of this year. Which is a terrible way to run your money. 

Dong: There you go. And I think the more important thing is for anybody listening to this, it’s have an asset allocation and stick to it. Just because Bank of America or any other bulge bracket bank releases their projection for the year doesn’t mean you have to go out and make a change for it. Most of the time rebalancing like this, you’re going to incur tax consequences. You know, try to minimize that friction, stay the course, and if you want, get ChatGPT to sum up all the predictions by Goldman and stuff and revisit at year end. You’d be surprised how many of them are off.

Dave Nadig: And you’ll probably be right about at the market, which is funny how that works.

Tony Dong: Exactly.

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