While the S & P 500 put up a banner year in 2025, U.S. investors with too much of a domestic focus likely missed out on gangbuster returns – and the prospect of attractive income – abroad. The iShares MSCI ACWI ex U.S. ETF (ACWX) climbed nearly 29% in 2025, compared to roughly 16% in the S & P 500. Individual countries put up even bigger numbers, with the iShares MSCI Brazil ETF (EWZ) up 41% last year and the iShares MSCI South Korea ETF (EWY) surging 91%. “So many people don’t recognize that if you were invested internationally, international developed markets were up about 30%,” said Rafia Hasan, certified financial planner and chief investment officer at Perigon Wealth Management in Chicago. “It’s been a tough slog having that exposure and talking about international diversification [for] so many years when it didn’t pan out,” she added. That outperformance seems to be continuing in 2026. Stocks suffered a sharp sell-off on Tuesday over tariff fears and worries toward the Trump administration’s attempt to wrest control of Greenland. The decline drove the S & P 500 into negative territory for 2026, now off 0.3%, while the ACWX is up more than 3%. International catalysts There were a couple of factors behind international markets’ outperformance in 2025. For starters, there was the depreciation in the U.S. dollar. The U.S. dollar index slid more than 9% last year, hurt by fears of higher U.S. tariff on imported goods, concerns around the cost of President Donald Trump’s “big, beautiful bill” and lower short-term interest rates courtesy of the Federal Reserve. A weaker dollar bodes well for international stocks, boosting their performance – and giving U.S. investors an additional return from the difference in currencies. “That dollar depreciation was more marked relative to the Eurozone versus the emerging markets,” said Hasan. There is also the fact that while the S & P 500 is seen by many as overvalued, with a forward price-earnings ratio of nearly 22, international stocks have been trading at a discount for years, she added. “It’s very much a mean reversion in valuation story,” said Kevin Khang, senior global economist at Vanguard. “What was cheap just rallied a lot more versus something that wasn’t cheap.” International stocks also provide exposure to different corners of the market, as opposed to the tech-heavy concentration in the U.S. In Europe, financial companies and banks play a bigger part in indexes and contributed to recent returns, Hasan said. Meanwhile, the AI trend continued to influence the Korean market, home to chip players Samsung and SK Hynix, Khang said. An allocation of 30% to 40% is along the lines of what financial advisors are recommending when it comes to adding international exposure to a U.S. investor’s portfolio. “Today, roughly 60% of the world’s public equity market is in the U.S. and about 40% is outside of the U.S.,” said Alex Canellopoulos, CFP and director of investments at Vista Capital Partners in Portland, Oregon. “That’s a helpful reference point because it avoids turning the decision into a forecast about which region will outperform next,” he said. Income kicker In addition to recent index outperformance, investors also enjoy higher dividend yields in international stocks. Where the S & P 500 is offering a “pretty paltry” yield of about 1.1%, investors can find yields exceeding 3% in Europe, according to Morningstar strategist Dan Lefkovitz. “It’s become harder to get income in the U.S. equity market,” he added. Several ETFs offer investors a crack at capturing a combination of appreciation and dividend income from overseas stocks. The iShares International Select Dividend ETF (IDV) has a 30-day SEC yield of 4.45% and an expense ratio of 0.50%, while the Schwab International Dividend Equity ETF (SCHY) has a 30-day SEC yield of 3.87% and costs 0.08%. Getting in Rather than betting on individual international stocks, investors can take a diversified approach by snapping up an ETF. Investors can work with their financial advisor to ensure that their portfolio allocations aren’t too heavily skewed to the U.S., rebalancing by selling some domestic positions and buying some international exposure. Those who might want to move more gradually may consider adding new dollars into these international positions. Dollar cost averaging allows investors to build positions over time and at varying prices.
