As the investment landscape shifts in 2025, international markets have emerged as powerful engines of growth, offering compelling opportunities that challenge the traditional U.S.-centric approach.

2025 Market Performance: International Equities Leading the Way

International equities have delivered extraordinary returns in 2025, outpacing U.S. markets by a substantial margin and rewriting the story of global outperformance.

• Non-U.S. stocks returned approximately 26% year-to-date through November.
• The MSCI ACWI ex-USA posted an 18.1% gain in the first half of 2025.
• Morningstar single-country indexes saw Japan, China (+25%), Korea (+43%), Mexico and Brazil (+30%).

In stark contrast, U.S. growth stocks fell nearly 10%, while value stocks managed a modest 2% gain. This reversal underscores the need to look beyond domestic borders for diversified returns.

Valuation Divergence and Starting Points

Elevated U.S. valuations juxtapose sharply with more attractive entry points abroad, setting the stage for strategic portfolio tilts.

With the S&P 500 trading at lofty multiples, investors face the challenge of justifying 15% projected earnings growth against steadier, more achievable targets overseas. International markets trade at lower forward P/E multiples, offering a buffer against stretched valuations and greener fields for positive surprises.

Diversification Benefits of Global Exposure

Broader geographic diversification reduces concentration risk and enhances portfolio resilience. Recent data illustrates a meaningful decline in correlation between U.S. and non-U.S. equities.

• Reduced correlation between global markets cushions against domestic downturns.
• Exposure to diverse sectors and corporate structures mitigates single-country shocks.
• Challenging home country bias enhances long-term risk-adjusted returns.

Despite these advantages, the average U.S. advisor still allocates over 77% of equity portfolios domestically, a figure that masks the potential of international outperformance.

Macro and Currency Dynamics

Beyond stock selection, macroeconomic and currency trends are powerful drivers of international returns.

• Weaker dollar cycle beginning amplifies foreign gains when translated to USD.
• Trade policy shifts and alternative reserve currency demand challenge the greenback’s dominance.
• Interest rate divergence and expected cuts may buoy global bond returns.

Investors who anticipate a structural shift in currency markets can harness the effects of a softer dollar to boost total returns in a global portfolio.

Fixed Income: Bonds Beyond Borders

As equity markets surged, bond investors also ventured abroad in search of yield and diversification.

Net sales into global bond funds tripled in 2024 to $2.3 trillion, with bond funds attracting $1.4 trillion and money market funds another $1.53 trillion—the strongest inflows in over a decade.

Hedged local-currency government bonds in Europe have often outperformed U.S. Treasuries, thanks to currency hedge contributions. Even with lower nominal yields, the realized USD yield after hedging can surpass that of U.S. 10-year notes.

Regional Spotlights: Japan, Europe, Emerging Markets

Opportunities vary significantly by region, each offering unique catalysts for growth.

Japan stands out for accelerating wage growth, structural governance reforms, and a favorable yen backdrop. Corporate initiatives and shareholder-friendly policies underpin the market’s appeal.

In Europe, regulatory easing has bolstered financials, aerospace, and defense sectors. A softer dollar further magnifies returns for U.S.-based investors.

Emerging markets have delivered standout gains. China’s tech giants drove a 25% rally, Korea soared 43%, and Mexico and Brazil rebounded nearly 30% after a weak 2024, illustrating the cyclical nature of these economies.

Factor, Style, and Alternative Strategies

Beyond broad market bets, factor and style tilts can enhance international diversification and capture unique sources of return.

The international value factor has outperformed its U.S. counterpart, supported by higher dividend yields and attractive earnings yields abroad. Quality factor diversification—historical correlation of just 0.33 with U.S. quality—offers compelling risk mitigation.

Meanwhile, hedge funds and alternative strategies have gained traction as traditional 60/40 portfolios face headwinds. With risk-free rates at 4–5%, market-neutral, long/short equity, and relative value strategies benefit from higher short-interest rebates and appealing carry.

Constructing a Balanced Global Portfolio

In light of these insights, investors should consider a multi-dimensional approach to global allocation:

• Overweight international equities to capitalize on valuation gaps and superior 2025 performance.
• Include hedged fixed-income exposures to benefit from rate cuts and currency effects.
• Rotate factors tactically—value, momentum, quality—based on regional and macro signals.

By blending regional, factor, and alternative strategies, portfolios can achieve a balanced risk-return profile that navigates diverse market conditions.

Global opportunities in 2025 extend far beyond headline benchmarks. A comprehensive international fund strategy not only taps into robust performance but also fortifies portfolios against concentrated risks. As the dollar cycle turns and macro trends evolve, investors who embrace a truly global perspective will position themselves to capture the next wave of growth.