Global and International

The Importance of Regional Diversification from a Different Perspective

  • The world’s equity markets generate a range of returns each year across different regions, sectors, and asset classes. A glance at the dispersion of colors in this chart—each representing a segment of the global marketplace—demonstrates how leadership changes frequently, making it nearly impossible to accurately predict next year’s winning segments of the market.
  • Because International Developed Markets tend to be a core allocation for many U.S. investors, we have centered the performance (below) to illustrate the annual swings of the asset classes.
  • Diversification across global markets has been a trusted strategy for both limiting exposure to the market’s worst performers and gaining participation in the performance of the market’s winners.
If You Can’t Predict the Future…Try Diversification

Source: As of December 31, 2023. Frontier Market data is not available prior to 2003. Past performance is no guarantee of future results. U.S. Large Cap (US LC), International Developed Markets (Intl Dev), Global Markets (Global), Emerging Markets (EM), U.S. Small Cap (US SC), International Small Cap (Intl SC), and Frontier Markets (FEM) are respectively represented by the following Indices: S&P 500®, MSCI EAFE, MSCI ACWI, MSCI EM, Russell 2000, MSCI ACWI ex USA SC, and MSCI FM.

U.S. Investors Are Often Under-Allocated Internationally

  • With 38% of the world’s $75.8 trillion publicly traded investment universe located outside the U.S., opportunity beyond U.S. borders is expansive. Nevertheless, “home bias” leads investors to prefer to keep their investments in their own country, which has historically been true in the U.S.
  • International equities outperformed U.S. large caps in the down market of 2023, which was not reflected in the investment allocations in U.S. mutual funds and ETFs.
  • Growing uncertainty around inflation and the Fed’s response to it provides the potential for the U.S. dollar to weaken against foreign currencies. The potential for a weaker U.S. dollar, combined with favorable valuations, makes a compelling case for investing abroad.
Global Investable Universe
Total World Equity Market Cap: $75.8 Trillion1
Allocations in Equity Mutual Funds and ETFs2

Source: FactSet, MSCI. Market segments are represented by components of the MSCI ACWI All Cap. Morningstar, December 31, 2023. Allocations based on total assets in Morningstar categories of U.S. domiciled funds. Not representative of full Morningstar Universe. The world stock category is International Large Cap.
1 Per MSCI ACWI IMI. As of December 31, 2023.
2 Non-U.S. allocations do not equal 24% due to rounding.

Profitability Has No Borders

  • A review of the 20 most profitable companies within each sector globally shows that most are located outside the U.S., underscoring the need to think globally if you are seeking the highest quality investments.
Location of Top 20 Most Profitable Companies
Five-Year Median Cash Flow Return on Investment (CFROI)

Source: FactSet, MSCI, Harding Loevner, HOLT database. Companies with market cap > $1 billion as of January 25, 2019. Profitability is based on 5-year median CFROI. CFROI is the average economic return on all of a company’s investment projects in a given year.

Is Global Exposure from Companies Enough?

  • These tables show that the largest companies in the U.S. and abroad tend to source revenues not only from their country of domicile, but also from other markets worldwide.
  • While investors can gain some international exposure from these stocks, and vice versa, that exposure is limited to large, multinational corporations and does not include small- and mid-cap companies or companies in developing markets. For this reason, investing in multinational corporations alone will not provide meaningful diversification.
Revenue Sources for Largest U.S. and International Companies

Source: FactSet, S&P, MSCI. As of December 31, 2023. Values are estimated based on FactSet’s proprietary algorithm. U.S. companies are represented by the S&P 500® Index. Non-U.S. companies are represented by the MSCI ACWI ex USA Index.

Even Volatile Assets Can Lower Portfolio Risk

  • While many individual country stock markets are more volatile than the U.S., when combined into a globally diversified portfolio, overall volatility can be reduced since these markets are not perfectly correlated (some zig while others zag).
  • This chart shows a key principle of global diversification: Combining assets with lower correlations—even those that are volatile in their own right—may reduce overall portfolio risk. In this case, the combined portfolio carried lower risk than 18 of the 21 countries represented.
A Combined Global Portfolio Has Lower Volatility than Nearly All Individual Countries
December 31, 2002–December 31, 2023

Source: MSCI, FactSet. The Global Portfolio is represented by the MSCI EAFE. U.S. is represented by the MSCI USA Index. Israel was excluded because the Index does not have a 20-year record. Country Volatility refers to the annualized standard deviation of companies classified in their respective countries by MSCI, including those that are not MSCI Global Equity Index constituents, but are tracked due to their size and liquidity characteristics.

U.S. vs. International Equity Super Cycles

  • Since the early 1990s, U.S. equity performance has experienced long, persistent cycles of over- or under-performance relative to International equities.
  • Though U.S. outperformance continues to persist, global inflation, economic uncertainty, and supply chain reconstruction in the wake of the global pandemic could provide a catalyst for a shift in the cycle.
Rolling Five-Year Total Return Performance of the Russell 3000® vs. MSCI AC World ex USA

Source: MSCI, Russell, FactSet. As of December 31, 2023. The U.S. Index is represented by the Russell 3000® Index and the International Index is represented by the MSCI AC World ex USA Index. Past performance is no guarantee of future results.

International Equities Have Historically Offered an Attractive Discount

  • The fact that the valuations of international companies are near an historic discount to their U.S. counterparts points to potential buying opportunities beyond U.S. borders.
International Valuations Near Historic Discount to U.S.

Source: FactSet, MSCI, Russell, S&P. As of December 31, 2023. The U.S. is represented by the S&P 500® Index and International is represented by the MSCI ACWI ex USA Index. P/E based on earnings for the last 12 months. Past performance is no guarantee of future results.

Good Luck Predicting Currency Moves

  • While there are signs that we could be entering a period of U.S. dollar weakness, to the benefit of international investors, currency movements are inherently unpredictable—and help and hurt about the same over the long term.
  • The strength of the U.S. dollar (USD) vs. other currencies changes rapidly based on a number of factors. For this reason, it does not make sense to try to time currency movements as part of an overall portfolio strategy.
Quarterly Returns of MSCI EAFE Index in USD vs. Local Currency

Source: FactSet, MSCI. As of December 31, 2023. Past performance is no guarantee of future results.

While Hard to Predict, Currency Trends Can Help Investors

  • When the U.S. dollar (USD) appreciates against foreign currencies, as it did for much of 2012 through 2021, the value of corporate earnings sourced from abroad diminishes when those earnings are repatriated. This hurts returns for U.S. investors in international markets.
  • A continuation of 2022’s weakening trend of the USD could potentially benefit U.S. investors in international markets.
U.S. Dollar Movements and Market Returns
Nominal Trade-Weighted U.S. Dollar Exchange Rate Index (1975 – 2023)

Source: FactSet, MSCI, S&P®. As of December 31, 2023. Past performance is no guarantee of future results.
1 S&P 500®

Diversification does not guarantee a profit or protect against a loss in declining markets.


Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations.


Investments in small capitalization companies are subject to risks such as erratic earnings patterns, competitive conditions, limited earnings history and a reliance on one or a limited number of products.


Investments in frontier emerging markets and emerging markets are subject to risks such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.


Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies.


Alpha, often considered the active return on an investment, measures the performance of an investment against a market index used as a benchmark, since the benchmark is often considered to represent the market’s movement as a whole. The excess return of a fund relative to the return of a benchmark index is the fund’s alpha.


The Sharpe ratio is calculated using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio’s historical risk-adjusted performance.


Standard deviation is used as a measure of an investment’s volatility. It calculates the variability of returns by comparing a mutual fund’s return in each period with the average return across all periods. The standard deviation is not available for periods of less than three years.


Click here for index definitions. All investments are subject to risk including possible loss of principal.


Please visit for the most current list of countries represented by the MSCI indices.


Indices are unmanaged, are not available for investment and do not incur expenses.


All data referenced are from sources deemed to be reliable but cannot be guaranteed as to accuracy or completeness.


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