With the U.S. stock market continuing to boom on the back of a handful of technology names related to the artificial intelligence build-out, why bother investing internationally?
The answers are diversification and upside.
As you’ve probably heard, the U.S. stock market is top-heavy. What you might not know is the S&P 500 Index is more heavily concentrated than it was at the peak of the dot-com era. Such levels of concentration represent potential risks for investors, particularly those in passive index investments, which seek to replicate a benchmark’s return pattern. While tech innovators may very well continue to lead in 2025, investors should consider diversifying their stock holdings internationally either by rebalancing or committing new money.
Why?
More than half of the best-performing companies in the MSCI ACWI are internationally domiciled. For example, Airbus, a French company, sells airplanes to major U.S. airlines like United and Delta. Semi-conductor industry companies such as Netherlands-based ASML and Taiwan-based TSMC are crucial to the artificial intelligence theme. Demark-based drug-maker Novo Nordisk is a leader in obesity drugs.
In emerging markets, China may dominate headlines, but opportunities are growing in countries such as India, Indonesia and Mexico, regions where infrastructure growth is accelerating, government balance sheets are stronger and supply chain shifts are boosting regional economies.
New roads, housing developments and industrial parks have left parts of India unrecognizable from just a few years ago. Indonesia is attracting foreign investment to build out the electric vehicle supply chain. And Mexico is becoming a reshoring hub, as Western economies look to reconfigure supply chains.
Meantime, corporate governance reforms in Japanese and South Korean companies may unlock value and opportunities across industries.
Plus, many international companies have more reasonable valuations than U.S. companies, while the dividend landscape is notably richer.
Those opportunities can boost portfolios with both investing upside and diversification.
ETFs can provide one avenue to do so. The Capital Group International Equity Select ETF Canada (CAPI) presents one option therein. CAPI seeks capital appreciation in addition to dividends for its investors. The ETF primarily targets large-cap firms outside of North America. Having launched October 2024, it could appeal to investors looking to increase diversification and upside.