Why Geographic Diversification Matters
Uncertainty around fiscal, monetary, and trade policies has weakened U.S. economic growth prospects relative to improving conditions abroad. Is your portfolio geographically diversified to capture global opportunities?
At the start of 2025, many investors were confident that U.S. stocks would continue to outperform international markets, fueled by political and economic optimism. However, international stocks have outperformed U.S. stocks year-to-date, both before and after the April 2nd tariff announcement.1 With U.S. tariffs remaining in flux, should investors consider whether their portfolios are adequately diversified to capture opportunities outside the U.S.?
- Recent U.S. equity market volatility has underscored the risks associated with a geographically concentrated investment approach. Uncertainty surrounding U.S. trade tariffs has led to pronounced market swings since the beginning of 2025, while international markets, driven by expectations of fiscal stimulus and improving geopolitics, have strongly rebounded after years of relative underperformance. In U.S. dollar terms, international equities outperformed U.S. markets by over 1,200 basis points in the first half of 2025—a gap widened by a weaker dollar following significant policy shifts in Washington.2
- As shown in the chart above, the rolling six-month correlation between U.S. and non-U.S. stocks has dropped to its lowest level in 20 years. During periods of low global equity correlations, a geographically diversified portfolio may help investors mitigate volatility and enhance potential risk-adjusted returns.
- While we continue to maintain strong conviction in the compelling long-term potential of U.S. growth equities, we believe investors should also look beyond U.S. borders for potential opportunities. In our view, pro-growth fiscal spending packages, capital market reforms, and structural growth themes such as grid upgrades and rising aerospace & defense investments create potentially favorable conditions for non-U.S. equities, which currently trade at a 35% price-to-earnings discount to their U.S. counterparts (see The Capital Friendly Case for International & Emerging Market Equities).3
1, 2 First half 2025 performance compares the total return of the MSCI ACWI ex US Index and the S&P 500 Index from 12/31/24 through 6/30/25. The performance data quoted represents past performance, which is not an indication or a guarantee of future results.
3 As of June 30, 2025, the P/E of the MSCI ACWI ex US Index was 14x, while the S&P 500 Index was 22x.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of July 2025. 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.
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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.
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