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The case for international equities
A $27.5 trillion asset class too important to ignore
Today, non-U.S. equities represent $27.5 trillion in market capitalization — roughly 40% of the world’s total (Figure 1). In our view, exposure to international stocks is essential for long-term investors seeking compelling returns and well-diversified equity exposure in their portfolios.
While it’s true that non-U.S. equity markets have generally lagged their U.S. counterparts in the last several years, this relative underperformance does not negate the scope of the investment opportunity they represent or the value of holding international equities in a long-term portfolio. In fact, as explained in the following section, periods of outperformance by non-U.S. stocks have been a common feature of the global equity market landscape for decades.
Market leadership shifts over time
Historically, both U.S. and non-U.S. equities have taken turns leading global markets, sometimes for long periods and by wide margins. As shown in Figure 2, U.S. stocks generally dominated in the decade following the 2007- 2009 global financial crisis and recession, handily outperforming both developed and emerging non-U.S. markets. This trend has largely continued through the global COVID-19 pandemic of 2020 and 2021. Prior to that historic bull run for U.S. equities, international stocks had reigned for five consecutive years, also seen in Figure 2. The MSCI EAFE (developed non-U.S. markets) and MSCI EM (emerging markets) indexes beat the S&P 500 Index from the burst dot-com-bubble low in October 2002 through the pre-recession market peak in October 2007.