It’s Time to Look Abroad: Rebalancing Your Portfolio and Investing Internationally
For much of the past decade, U.S. equities have outperformed their global peers, driven by strong corporate earnings, tech sector dominance, and a favorable economic environment. But as market dynamics shift, there’s a growing case for diversifying into international stocks. From attractive valuations to global trade realignments, international markets—particularly in emerging economies—may offer compelling opportunities that U.S. investors shouldn’t ignore.
- Low P/E Ratios Point to Relative Value Abroad
One of the most glaring signals of opportunity lies in valuation. While U.S. stocks—especially in the large-cap growth space—continue to trade at historically high price-to-earnings (P/E) ratios, many international markets are significantly cheaper. For example, European and certain Asian equities currently trade at P/E multiples that are 25–40% lower than their U.S. counterparts.
This valuation gap isn't just academic—it has real implications for long-term returns. Historically, lower entry valuations have been linked to stronger future performance. For investors focused on fundamentals, the international discount presents an appealing entry point, especially for those looking to rebalance away from overconcentrated U.S. positions.
- Trade Disruptions Are Reshaping Global Supply Chains
The last few years have seen an escalation in global trade tensions—most notably between the U.S. and China. Tariffs, export restrictions, and geopolitical frictions have prompted multinational corporations to rethink their supply chains. While these disruptions have posed short-term challenges, they are catalyzing long-term structural shifts in global trade.
Many companies are diversifying manufacturing bases to avoid overreliance on any single country. This is leading to increased foreign direct investment in countries like Vietnam, Mexico, India, and Indonesia, which are stepping in to fill the gaps left by decoupling strategies. For investors, this creates a ripple effect of growth opportunities in these emerging markets.
- Emerging Economies Stand to Benefit—And So Do Diversified Portfolios
As supply chains diversify and capital flows into new manufacturing hubs, emerging markets are poised to capture a larger share of global GDP. Countries with favorable demographics, expanding middle classes, and improving infrastructure stand to benefit the most.
For investors with internationally diversified portfolios, this could translate into both growth and resilience. Exposure to different economic cycles, currency movements, and sector strengths helps reduce overall portfolio volatility. Additionally, the inclusion of emerging markets can offer higher long-term growth potential compared to developed economies, especially as domestic consumption increases in these regions.
Final Thoughts: Thinking Globally, Acting Strategically
While home-country bias is a natural tendency for many investors, the current market landscape suggests that looking abroad may not only enhance diversification but also improve return potential. With U.S. stocks priced for perfection and trade disruptions reshaping the global economy, international and emerging market equities deserve a closer look.
Whether through ETFs, mutual funds, or direct stock purchases, integrating global exposure into your investment strategy could be a timely move. As always, it's important to align these choices with your risk tolerance, investment horizon, and financial goals—but don’t underestimate the value of going global.
Kovitz Investment Group Partners, LLC (“Kovitz”) DBA Telemus. Telemus is a division of Kovitz, a registered investment adviser with the Securities and Exchange Commission (SEC). SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.
All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.
Trever currently works as a Wealth Advisor whose clients maintain Midwest roots. He helps affluent and emerging wealth families achieve their financial goals and make a smooth transition to retirement. As a trusted advisor for firm’s most complex ultra net worth families he finds work highly fulfilling leveraging his 20+ years of financial services experience.
