🌍 Going Global: Why It Might Be Time to Rethink International Exposure
🧭 The Shift: Global Markets Are Back in Focus
For the first time in nearly 15 years, international stocks are outpacing their U.S. counterparts — a reversal that few retail investors saw coming. In the first half of 2025, overseas equities delivered an 18.2% return, easily eclipsing the 5.6% gain in U.S. stocks over the same period.
This resurgence has caught the attention of institutional strategists and everyday investors alike. BlackRock’s Gargi Chaudhuri notes that clients are now asking how to restructure their portfolios to include more global exposure — a conversation that hadn’t surfaced meaningfully since the post-2008 recovery era.
📉 The Context: Why the U.S. Dominated for So Long
Since the 2010s, U.S. markets had a structural edge. American tech giants — the so-called "Magnificent Seven" — led a digital transformation boom. Their massive earnings growth (9% CAGR over 5 years, per Citigroup) dwarfed the 4% average growth in developed markets and 1% in emerging economies.
Additionally, the strength of the U.S. dollar magnified returns for domestic investors and kept international equities in the shadows.
🔁 The Rotation: Valuations Tell a New Story
As of July 2, 2025, U.S. stocks are trading at 23x forward earnings, while non-U.S. stocks are sitting at a much leaner 14x, per Yardeni Research. That’s a substantial discount — and one that investors are starting to notice.
Drew Pettit of Citigroup believes the earnings gap is narrowing. He projects non-U.S. developed markets will grow earnings at 6% to 7% annually over the next five years, with tailwinds from stimulus policies in Europe and a less aggressive fiscal posture in the U.S.
💰 Where the Smart Money Is Going
Firms like Citi have already acted — downgrading U.S. equities to neutral and recommending greater exposure abroad. Target-date fund giants like Fidelity now allocate up to 45% of equity exposure to non-U.S. markets.
Putnam Investments remains cautious, holding only 20% in foreign stocks, arguing that the globalization of markets has reduced the diversification benefits of international exposure.
🔎 What Should Individual Investors Do?
💡 Diversification still matters — especially when leadership rotates.
Most financial planners suggest holding 30% to 40% of equity allocations in international stocks. Anything under 15% may be too small to matter; anything over 50% can turn into an aggressive directional bet.
Rick Ferri, a veteran advisor, keeps it simple: “There’s no magic formula. But it’s time to stop ignoring global opportunities.”
🌐 How to Go Global — Smartly
Passive index investors can consider total-world ETFs like:
- Vanguard Total World Stock Index (VTWAX)
- iShares MSCI ACWI (ACWI)
For more focused exposure:
- Vanguard FTSE Developed Markets (VEA)
- Vanguard FTSE Emerging Markets (VWO)
- BlackRock iShares EAFE / EM
🔬 What to Watch: 3 Promising International Themes
- AI Infrastructure in Europe: Schneider Electric, Siemens, and Iberdrola benefit from the AI build-out.
- Undervalued Healthcare Giants: AstraZeneca, Sanofi, GSK, and BioNTech offer long-term value.
- European Banks Recover: Many are now trading above book value — a positive sign after years of underperformance.
📊 Chart Highlight
WSJ Dollar Index is down 8.13% YTD — the largest drop since 2020. A falling dollar boosts returns for U.S. investors holding international stocks.
🧭 Investor Takeaway
This is not just about chasing performance. It’s about recognizing a macro regime shift: U.S. dominance is no longer guaranteed.
📌 Next Move: Rebalance.
– If your international exposure is under 20%, consider adding.
– Stick to low-cost ETFs.
– Watch for dollar weakness and global earnings revisions.
