International equities: Still time to invest despite US dominance

Key reasons for international equity allocation

• Diversification Benefit: The dominance of a few mega-cap names in the US highlights one of the enduring arguments for international investing: diversification. Investing internationally provides broader exposure to various geographies, and industries. This diversification reduces risks tied to specific sectors or countries and lessens dependence on a narrow group of growth companies.
• Developing Drivers: Investing internationally means participating in global structural trends such as energy transition, infrastructure investment, and defense spending. In Europe, there is a big push of fiscal stimulus reinforcing investment in dual-use technologies, automation, and cybersecurity, supporting a multi-year cycle of capital spending.  Japan, meanwhile, continues to benefit from the latest phase of Abenomics, where ongoing corporate governance reforms, wage growth, and shareholder-return initiatives are supporting both earnings and market participation.
• Discounted Opportunity: Even after strong gains earlier in the year, forward price-to-earnings ratios remain significantly lower outside the United States.  It is true a softer US dollar has amplified returns for international equities, but it is not a prerequisite for outperformance. International markets have often delivered strong results even when the dollar is stable. Factors such as local economic growth, corporate earnings momentum, valuation catch-up, sector composition, and policy reforms historically have played a more decisive role in driving returns. Currency should be viewed as a potential tailwind, not the main rationale for global diversification. 
   

Finding mispriced opportunities in international equity markets

Sir John Templeton built his career on the idea that true diversification requires thinking beyond borders. ‘If you search worldwide, you will find more and better bargains than by studying only one nation,’¹ he said. That principle remains central to our investment philosophy. In today’s market, where leadership has become concentrated and style cycles can shift quickly, global perspective and disciplined diversification are more important than ever.

Our approach focuses on the long-term relationship between valuation and earnings power. The fiscal year-six framework, which compares current prices to earnings expected six fiscal years ahead, shows how long-term fundamentals can uncover opportunities that short-term metrics overlook. This forward view helps identify companies whose earnings potential is underappreciated, not only in traditional value sectors but across the full spectrum of global equities. The result is a balanced portfolio with diversified exposures and multiple sources of return.

Active ETFs can provide the structure to deliver this approach effectively. They combine the transparency and liquidity investors expect from ETFs with the research depth and stock selection discipline of active management. This makes them well suited to a global strategy that seeks to capture valuation and earnings opportunities wherever they arise. Active ETFs have become an increasingly mainstream tool, accounting for the majority of new ETF launches in recent years and gaining adoption within model portfolios that emphasize flexibility and cost efficiency.

We apply this philosophy through our Types of Value framework, which identifies opportunities across five categories:

1. Classic Value
2. Mispriced Growth
3. Undervalued Quality
4. Discounted Cash Flow
5. Discounted Assets

The process is sector- and region-agnostic, allowing diversification to emerge from individual stock selection rather than macro calls. Combined with the flexibility of active ETFs, it offers a modern way to access global earnings streams while maintaining liquidity, transparency, and price discipline.

In 2025, the case for international equities stands out for several reasons. Valuation gaps outside the United States remain wide, offering scope for catch-up as global earnings growth broadens. Regional diversification helps mitigate the risks of concentrated market leadership, while policy reforms and sector shifts are creating new opportunities across major markets.

In this paper, we examine these drivers in detail, highlighting why a globally diversified approach is well positioned to benefit from the evolving landscape.

Our conclusion: It’s not too late

Making the case for international equities does not mean turning away from US markets. The United States remains home to many world-class companies, and its innovation ecosystem continues to lead in transformative areas such as artificial intelligence and biotechnology. However, the case for international investing has never been about choosing one market over another. It is about recognizing that compelling opportunities exist beyond US borders—often at more attractive valuations, with different sources of growth and risk.

For investors who have been underweight international equities, it is not too late to reconsider. The long-term opportunity remains intact, and recent market dynamics suggest that the tide may be turning. Valuation gaps are still wide by historical standards, diversification benefits are clear, and early signs of a sustained rotation are emerging. Add to this the potential tailwinds from currency trends, policy support in key regions, and a broader earnings recovery, and the argument for a more balanced global allocation becomes stronger. In an environment where leadership is likely to be more dispersed than in the past decade, international equities deserve a closer look as part of a forward-looking portfolio strategy.