Look Beyond the Home Team?
By favoring familiar domestic markets, investors may forgo a more diversified, risk-efficient portfolio. Could this mistake be holding U.S. investors back as structural policy tailwinds gain speed abroad?
Behavioral finance has taught us that our cognitive biases create blind spots. One very common blind spot in investing is home country bias. People tend to gravitate to what they know and invest in their home country, but it may leave portfolios under diversified, potentially raising portfolio volatility and lowering risk-adjusted returns. Could this be an easily correctable mistake?
- While U.S. investors have over $5 trillion of holdings in international equity mutual funds and ETFs, this pales in comparison to the $18 trillion of U.S. equity mutual funds and ETFs that they own, according to Morningstar, and likely understates their domestic exposure when accounting for individual stock investments. The more than three-quarters allocation to U.S. equities stands in stark contrast to the proportion of global GDP that the U.S. economy actually comprises. For Americans, the biggest underweighting may be in Emerging Markets which comprise approximately 40% of global GDP and are projected to grow more than twice as fast as the U.S. through 2030, according to the International Monetary Fund.
- There may be an opportunity for U.S. investors to address their home country bias. After years of relative underperformance to U.S. markets, international and emerging market stocks may be entering a new chapter. In our view, pro-growth policy reforms, such as
Germany’s fiscal spending package and Japan’s sweeping corporate governance reforms, have created strong tailwinds for companies to potentially improve capital efficiency and shareholder value (see also
A Global Rebalance of Capital-Friendliness).
- While we continue to see compelling opportunities within the U.S., there are many
high-growth companies outside the U.S. that are trading at an attractive discount on a price-to-earnings (P/E) basis. Fueled by encouraging policy reforms and stronger earnings prospects abroad, international equity markets have meaningfully outperformed the U.S. since 2024.1 With P/E multiples for international and emerging market equities sitting well below their historical average relative to the U.S., we believe there could be plentiful opportunities for long-term growth investors.2
1FactSet, Standard & Poor’s, and MSCI from 12/31/24 through 1/31/2026. International equity markets refer to the performance of the MSCI ACWI ex USA, emerging market equities refer to the performance of the MSCI Emerging Markets Index, while U.S. equity markets refer to the S&P 500 Index. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.
2FactSet, Standard & Poor’s, and MSCI as of 1/31/2026. The historical price-to-earnings average is the monthly values of the MSCI ACWI ex USA Index and MSCI Emerging Markets Index relative to the S&P 500 Index from 2/28/2006 through 1/31/2026.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of March 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Foreign securities, Frontier Markets, and Emerging Markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility.
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Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. Investors cannot invest directly in any index. The performance data quoted represents past performance, which is not an indication or a guarantee of future results. MSCI ACWI ex USA Index: Captures large and mid cap representation across Developed Market countries (excluding the U.S.) and Emerging Market countries. Index performance does not reflect deductions for fees, expenses, or taxes. MSCI Emerging Markets Index: Captures large and mid cap representation across Emerging Market countries. Index performance does not reflect deductions for fees, expenses, or taxes.
FactSet is an independent source, which Alger believes to be a reliable source. FAM, however, makes no representation that it is complete or accurate.
Earnings per share (EPS) is the portion of a company's earnings or profit allocated to each share of common stock. Price-to-earnings is the ratio for valuing a company that measures its current share price relative to its earnings per share.
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