• The US stock market has demonstrated impressive outperformance versus the global stock market in
recent years. Following this winning streak, many investors are frustrated by international stocks’
performance, and understandably tempted to chase strong performance by adopting an overweight to the
• Although we are optimistic about the outlook for US stocks, we see a number of factors that are likely
to drive international stock market outperformance in the years ahead, and we therefore recommend
that investors maintain a globally diversified portfolio,with around 40% of your stock allocation in
international developed and emerging market stocks.
An investor looking at historical returns in 2007 would have been tempted to invest heavily in emerging markets. After all, the asset class had amassed a considerable winning streak, and being underinvested in the best-performing market can be a painful experience.
Despite continuing to significantly outgrow developed markets from an economic perspective, emerging market
stocks were not able to continue their winning streak during the global financial crisis or the ensuing recovery. On four separate occasions, emerging markets actually delivered negative returns in the same year that the S&P 500 posted a gain: 2011, 2013, 2015, and 2021.
Investors who were able to resist the temptation to chase emerging market outperformance, and maintain a globally
diversified portfolio, would have profited from this decision and registered strong gains. A globally diversified approach would also have helped their portfolios remain more resilient to geopolitical shocks than any single market.