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International equity investing: Is flexibility the new diversification?
Michelle Black
Solutions Portfolio Manager
Vincent Fu
Client Analytics Specialist
Sunder Ramkumar
Quantitative Analyst

 


U.S. and international equity markets have become much more correlated in recent years. As a result, investors can no longer rely as much on the diversification benefits of dedicated allocations to international equities to help offset potential losses in domestic equity portfolios. Increasingly, the value of international investing depends on seeking the most attractive investment opportunities across borders. We argue that strategies with greater geographic flexibility are best positioned to capture this value.

Key takeaways:

  • As trade and finance have become globally integrated, regional equity markets have become more correlated. This trend challenges the convention of using international equities as domestic diversifiers.

  • Following an analysis of mutual funds, we found that strategies that exercised greater geographic flexibility generated superior returns.

  • Outperformance in those certain funds was driven by superior stock selection, rather than systematic regional tilts or market timing.

 


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Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries.

Michelle Black is a solutions portfolio manager with 29 years of investment industry experience (as of 12/31/2023). She holds a bachelor’s in business administration from the University of Southern California. She also holds the Certified Investment Management Analyst® and Certified Private Wealth Advisor® designations, is a member of the Investments & Wealth Institute and serves on the CIMA commission.

Vincent Fu is a senior client analytics specialist with 15 years of experience. He holds an MBA from NYU and a bachelor's from UCLA. He also is a CFA charterholder. 

Sunder Ramkumar is a quantitative analyst with 19 years of industry experience (as of 12/31/2022). He holds a master’s degree in management science and engineering from Stanford University.

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