Investors look beyond crowded US stocks toward 2027

Farah Elbahrawy asks where to invest $10 million over the next five to ten years. David Druley of Cambridge Associates says governments have shifted attention from global efficiency toward self-sufficiency in energy, infrastructure, AI and defense. He expects geopolitical changes and shifting capital flows to cause disruptions, making diversification important.

Druley says the ten largest stocks account for about 40% of both the US and emerging-market stock markets. In his view, investors who do not work to diversify can become caught in crowded trades. He favors the relatively inexpensive and diversified European market, early-stage venture capital in the US and China, and hedge funds that buy potential winners and bet against potential losers.

Ekta Tolani of KBW Ventures says holding cash is attractive when it yields 4–5%, as she describes the conditions at the time of the discussion. She wants to compare the additional return offered by other assets with their risks, including market volatility and geopolitical uncertainty.

Tolani says KBW takes a long-term view and does not face the same exit deadlines as some investors. Real estate, private equity and venture capital have been core holdings, and she expects them to remain so. She says the firm is invested in the Middle East and the US and remains optimistic about both.

Asked whether US investors are taking more risk than they realize by owning mega-cap technology stocks, Druley says market concentration is at a high level. He distinguishes the fact of taking more concentration risk from the separate question of whether the eventual return will compensate for it.

Tolani remains optimistic about the US over the long term, citing its scale, execution capacity and investment and regulatory framework. She says she prices in near-term volatility while watching longer-term trends in government debt and deficits. Those concerns do not change her positive overall view.

For exposure to AI and other disruptive technologies, Druley favors early-stage venture capital in the US and China. He considers both significant venture markets, but says some later-stage companies have become very expensive. His preference is for the earlier stage rather than simply buying the largest established technology companies.

Tolani says KBW has substantial regional real-estate investments and is seeking more Middle East opportunities, while much of its venture portfolio remains in the US. She is especially interested in AI infrastructure, energy, healthcare technologies and defense or security applications where technology is changing the field.

Druley says the region's investment-manager landscape has matured over the past decade. His team is increasing its effort to assess managers investing locally, where he sees opportunity. On Europe, he again emphasizes lower relative valuations and diversification, despite the moderator noting a recent record for the Stoxx 600 index.

Druley says venture investors are now putting far more money into defense technology than they did five years earlier. He estimates a tenfold increase in US venture funding and says European managers are also investing. Tolani compares the change to the rise of private credit and notes that not every provider performs equally well as conditions change.

When asked whether defense is already a crowded trade, Druley says he thinks it is still early. In his account, consolidation among major US defense companies improved efficiency but reduced innovation, creating an opening for venture-backed firms. That is his assessment of the opportunity, not a claim that every investment in the sector is attractive.

Tolani says KBW began investing in security several years earlier. Its holdings span areas including airspace and cybersecurity, with several companies working in different categories. She sees deep technology and AI as increasingly important to security and defense, and remains positive about the sector.

Asked whether diversification can itself be risky, Tolani says diversification remains a core strategy and notes that the portfolio is no longer entirely in the US. She describes investor identity checks in Europe as cumbersome, while saying the region nevertheless has interesting robotics opportunities.

For the Middle East, Tolani sees opportunities to bring in and localize technologies developed elsewhere through suitable regional partnerships. She characterizes the local venture ecosystem as less developed for breakthrough technology, so her approach is to select opportunities rather than put money into the region indiscriminately.

Elbahrawy asks whether a recent 6% Nasdaq fall and the US midterms should change investors' long-term approach. Druley attributes the fall to crowded positions unwinding. He says historical returns under a Republican president and a Democratic Congress have been good, including an average in the mid-teens in the third year after midterms, by his account.

Druley says US market valuations are high relative to their own history, which he thinks could reduce long-term returns. He distinguishes that valuation concern from the election outcome: in his view, the political configuration alone should not alter investors' outlook.

When asked how much of a $10 million portfolio should go into private markets, Druley declines to give an individual allocation without knowing the investor's liquidity needs, goals and risk tolerance. He says the roughly 300 wealthy families his firm works with hold about 30% in private investments on average, including venture, buyouts, growth equity, infrastructure and real estate.

Tolani also resists prescribing one allocation for a generic investor. She says her team works backward from existing exposures, the lifestyle a family wants to maintain, liquidity and the amount of risk it can still take. The objective is to identify where further investment would add diversification rather than simply double an existing bet.

Tolani says she would move slowly in public markets and, where liquidity needs permit, take a long-term view of areas including energy infrastructure. She sees opportunities but says investments need to be selected carefully. Her answer depends on the investor's existing assets and capacity to take risk.

Druley closes by saying global small-cap stocks look cheaper than large caps, but that he would not invest blindly in either small companies or Europe. He emphasizes selecting skilled managers, remains interested in long-short hedge funds, and considers very large buyouts less attractive because, in his view, too much money is pursuing them.