Overseas

Published On: September 30, 2025

Written by: Ben Atwater and Matt Malick

U.S. equities have been the primary driver of portfolio growth for over a decade, with strong earnings, innovation, and consumer demand reinforcing the appeal of domestic exposure.

However, concentrating solely on one market increases risk. Given global policy shifts, fiscal expansion, and demographic changes, the case for global diversification has become increasingly compelling.

Diversification is not about predicting market winners; it is about spreading risk across regions and currencies. While the U.S. remains our largest allocation, valuations are currently elevated. In contrast, Europe, Japan, and emerging markets offer lower valuations, potentially providing a greater margin of safety.

European governments, led by Germany, are increasing spending on infrastructure and defense. EU initiatives to deepen capital markets aim to retain domestic investment. Equity valuations remain low compared to the U.S., and declining interest rates could boost business and consumer sentiment. For investors, Europe offers exposure to policy-driven growth at reasonable valuations.

Japan’s government and regulators are actively promoting corporate reforms. Share buybacks are at record levels, and companies are increasingly focusing on return on equity. Monetary policy continues to support growth, and recent trade agreements with the U.S. add further stability. These reforms enhance alignment between companies and shareholders, strengthening the case for sustained participation in Japanese markets.

Emerging markets now account for two-thirds of global GDP expansion, with 19 out of 24 major EM economies projected to outpace U.S. growth this year. Several key themes stand out:

• Fiscal Flexibility: Many EM governments maintain lower debt-to-GDP levels than their developed counterparts, allowing them more flexibility to ease policy when necessary.
• Technology Supply Chains: Taiwan, South Korea, and China are central to the semiconductor and artificial intelligence industries.
• Currency Sensitivity: EM equities often benefit from a weaker U.S. dollar, which improves trade competitiveness and attracts capital flows. Year-to-date the dollar has dropped meaningfully, and many analysts believe this is the beginning of a larger secular decline after many years of strength.

India’s ongoing reforms and favorable demographics support its growth, while China is utilizing fiscal and monetary tools to stabilize credit and support industry.

Equities outside of the U.S. trade at lower multiples than U.S. companies, creating potential for relative outperformance. For us, valuation discipline is a key reason to diversify.

The U.S. market remains central to our strategy, but concentration carries risks. Persistent deficits, inflationary pressures, and higher long-term borrowing costs could impact future returns. Diversifying into other developed and emerging markets distributes exposure and links portfolios to a broader range of growth factors.

Adding international equities complements, rather than replaces, U.S. holdings. Europe provides access to fiscal initiatives and reforms. Japan offers improved corporate governance and supportive monetary policy. Emerging markets provide scale and exposure to innovation and demographics. Collectively, these exposures can balance portfolios and reduce reliance on a single geography.

Global markets are adapting to new fiscal priorities, policy changes, and demographic trends. While U.S. equities remain our anchor, investors should prepare for an environment where returns have different dispersions, especially if the dollar’s year-to-date deterioration continues. Allocating capital to international markets broadens opportunities and mitigates the risks of concentrating solely in the U.S.