International Equities

The United States is home to some of the largest companies in the world. But it is important to remember that there are many great companies outside of the U.S too.  Overall, 80% of the world’s investable securities are outside of the U.S., as does 40% of the world’s market capitalization.

International markets are usually divided into two broad categories:

1. Developed markets are similar to the United States. That is, they are countries that have established industries, widespread infrastructure and a relatively high standard of living. Examples of developed markets include the United Kingdom, Japan, Australia, Canada, and Germany.

1. Emerging markets are countries that have developing capital markets and less-stable economies. However, they’re considered to be in the process of transitioning into developed markets, and often have much more rapid growth than already-developed economies. 

Currently, emerging markets make up about 15% to 20% of international markets in total. Examples of emerging markets include India, China, Poland, Indonesia, South Africa, Mexico, and Brazil.

International markets can also be divided regionally. These include:

• • Asia-Pacific (Australia, Japan, China, India, Singapore).
  • Europe (United Kingdom, France, Spain, Germany, Italy, Norway).
  • Latin America (Brazil, Mexico, Argentina, Chile)
  • Africa and the Middle East (South Africa, Egypt, Saudi Arabia)

Why Invest Internationally?

Markets outside the United States often don’t always rise and fall at the same time as the domestic market. In other words, failing to look across the U.S. border at shares of overseas companies means you’re overlooking complementary assets—securities that may zig when the U.S. zags.

One major reason for the difference in performance is the fact that different sectors make up large percentages of the indexes.

For example, in the United States, technology stocks make up about 28% of the S&P 500 index. In Europe, in the Stoxx 600 index, the two largest sector weightings are healthcare and industrial goods and services.

The recent outperformance of U.S. equity markets isn’t the natural state of affairs. History shows that stock market leadership has alternated between the U.S. and international stocks numerous times over the past four-plus decades. 

There have been distinct periods of international dominance, including a time in the 1980s when Japan’s bull market crushed that of all other countries, and another in the early 2000s after a string of accounting scandals rocked the U.S. Excluding international equities precludes your portfolio from taking advantage of these periods of international outperformance.

Bottom line – domestic investing and the pull to buy only U.S. stocks is real, and it only grew stronger during the historic U.S. bull market run over the past decade. But this bias leaves investors vulnerable to a possible extended period of U.S. equity underperformance, which could have a lasting negative impact on your portfolio.

How to Invest in International Equities

Many financial advisers recommend putting 15% to 25% of your money in overseas stocks.  This allocation is meaningful enough to make a difference to your portfolio, but not too much to hurt you if those markets temporarily fall out of favor.

There are a few ways you can invest in international markets via funds or ETFs:

International funds invest only in foreign markets, excluding the United States.

Global or world funds provide exposure to both foreign and U.S. markets.

Regional funds invest primarily in a specific part of the world, such as Europe or Asia.

Developed markets funds focus on foreign countries with developed economies, like Japan, Germany, or the United Kingdom.

Emerging markets funds invest in countries that are considered to have still-developing economies, such as India, Brazil, or China.

You can also access international stocks via American Depository Receipts (ADRs). ADRs are certificates issued by U.S.-based financial institutions that represent a share of a foreign company’s stock. They’re traded just like domestic stocks on U.S.-based exchanges, meaning you don’t need a special brokerage account to access them.

To help in your search for international funds, ETFs or stocks, check out www.magnifi.com. 

You just type in a term like “international stock funds” and instantly get relevant, tailored results presented to you.

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The information and data are as May 10,, 2022 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.