Many global stock portfolios have fallen out of favor over the past decade, due in no small part to the U.S. market’s strong outperformance over foreign counterparts. Lately, however, the virtues of global equity diversification have begun to reclaim some investor attention. With that in mind, the CFA Society New York recently interviewed Paul Boyne, head of Manulife Investment Management’s global quality value team, for a timely exploration of:

• The inherently cyclical nature of world equity markets
• Why global diversification has been regaining momentum
• The still-important role of value-style equity investing
• How investors might capitalize on this shifting landscape

What follows is a distilled version of Paul’s insight, recast in narrative format.

Market history is on our side

In a world being reshaped by economic and geopolitical realignments, a long-term historical perspective continues to underpin our belief in the power of global equity investing. World market leadership is invariably cyclical by nature, although the cycles sometimes last longer than anticipated. In the 1980s, for example, Japan led the way for an extended period, before passing the baton to European stocks in the late 1990s. Fast forward to the 2020s, which have comprised the best portion of a stretch of seemingly unstoppable U.S. equity dominance, propelled largely by the technology sector. But if market history is any guide, the pendulum will eventually swing back toward one or more non-U.S. geographies. 

Opportunity knows no borders

The first half of 2025 saw the MSCI EAFE Index outperform the S&P 500 Index, buoyed by a weaker U.S. dollar. Whether or not this might signal the onset of a sustainable new reign for developed foreign equities remains to be seen but regardless, we’re not suggesting that investors abandon the U.S. market or even making a tactical call to overweight international stocks. Rather, we believe investors with potentially outsized U.S. allocations should simply consider the strategic rationale for increased global diversification. The reality is that both U.S. and overseas markets offer attractive opportunities in high-quality companies, with many of the latter markets currently trading at discounted valuations versus the United States.

"We believe investors with potentially outsized U.S. allocations should simply consider the strategic rationale for increased global diversification."

Global macro forces are afoot

Over the past decade, the above arguments by themselves might not have persuaded many investors to revisit their asset allocation between U.S. and international stocks. But today’s environment is different: The present case for enhanced global equity diversification is also bolstered by several interrelated macro catalysts of which investors should be aware:

• Capital repatriation: Europe, Japan, China, and other regions/countries have long funneled massive amounts of capital—savings, investments, government reserves—into the U.S. markets. However, much of that capital may ultimately be repatriated back to its places of origin amid mounting international concerns about U.S. fiscal and trade policies against an unsettled geopolitical backdrop. Some sovereign wealth funds, for instance, are reassessing the perceived safety of their U.S. asset exposures. Another driver of capital repatriation is a growing recognition by U.S. rivals, particularly Europe, of the pressing need to reinvest in their own industries and economies. To that end, their deployment of repatriated capital from the United States should create non-U.S. investment opportunities for global allocators.
• The rise of populism: In the context of global investing, the theme of political populism ties in with that of capital repatriation. The wave of populist sentiment that has swept many countries in the 2020s can affect fiscal decisions, often causing governments to rethink their policy priorities and actions. Accordingly, the political will to carry out broadly unpopular steps like raising taxes across the board and/or cutting certain types of government spending may be lacking. In the absence of such austerity measures, leaders and policymakers faced with elevated debt-to-GDP ratios might be inclined to turn to (or encourage) capital repatriation—bringing U.S.-invested assets back home—as a way of addressing their nations’ fiscal challenges.
• Reshoring and regionalization: Another illustration of macro dynamics influencing the investment landscape lies in the accelerating move toward relocating global supply chains. The COVID-19 pandemic revealed the national security and trade vulnerabilities that can arise from overreliance on outsourcing. As a result, Europe and other key markets realize that there are advantages to be reaped from reshoring critical industries. Meanwhile, initiatives like the Mario Draghi plan to boost European competitiveness and the proposed formation of a regional savings and investment union are further evidence of a less fragmented continent striving to invest in itself. By focusing on non-U.S. companies that look poised to benefit from these developments, investors can opportunistically seek greater global diversification.
• Government interference: One explanation for historically superior U.S. equity performance can be found in the nature of the U.S. free-market system.  The nation’s hyper-capitalist approach facilitates the free flow of money to assets that “treat it best,” often leading to higher returns on capital for asset owners. But there are nascent signs of U.S. government interference in capital allocation, including tariffs/trade protectionism, support for selected industries, and purchasing direct stakes in companies, as well as the issue of U.S. Federal Reserve (Fed) independence. The potential for global investors to start questioning such forms of government involvement—and its implications for interest-rate policy—could be another reason to contemplate reallocating some U.S. assets overseas. 
  

Global value investing is back

The past decade has been marked by brisk and significant capital flows into the U.S. stock market, especially to a relatively small number of high-growth tech companies. As discussed, now may be a good time to rebalance U.S.-heavy equity portfolios by more fully diversifying into other global markets, notably for U.S.-based investors if the dollar’s softening trend persists (thereby augmenting investment returns from abroad that are converted back to the domestic currency). 

In addition, more growth-oriented equity investors may wish to reapproach the potential merits of value-style investing with a fresh eye. As global markets have evolved in recent years, so has the value stock universe. Indeed, we believe today’s international value space features a wide range of thematic opportunities across sectors—utilities, basic materials, and industrials, to name a few—in financially sound, undervalued companies that have yet to see a meaningful pick-up in investor interest. We suspect that may soon change.