As markets grapple with President Donald Trump’s evolving tariff policy, returns outside of the U.S. are looking especially attractive. Several region-specific exchange-traded funds are seeing a strong 2025, far outperforming the S & P 500 which is only marginally positive this year. Consider that the iShares China Large-Cap ETF (FXI) and the iShares Europe ETF (IEV) are scoring 2025 returns of 15.8% and 20.8%, respectively. The iShares MSCI Mexico ETF (EWW) and its Canadian counterpart (EWC) are also toting double-digit returns this year. This disparity in performance has unfolded as Trump’s trade policy sows uncertainty for investors, companies and the economy, and is driving down the value of the dollar. In the latest development, the U.S. Court of International Trade ruled Wednesday that the president overstepped his authority in issuing his “reciprocal” tariffs in April. .SPX FXI YTD mountain The S & P 500 versus the iShares China Large-Cap ETF in 2025 While the S & P 500 rose in relief on Thursday, gains were held in check as traders feared policy negotiations could now drag out even longer. But there’s at least one valuable lesson for investors amid all the confusion: It doesn’t hurt to add some international exposure to your portfolio. “U.S. companies have been the cream of the crop over the past decade or so, but conditions change,” said Callie Cox, chief market strategist at Ritholtz Wealth Management in Charlotte, N.C. “It’s a good challenge of the assumptions investors hold: The U.S.’s leadership isn’t always guaranteed, even though on paper it looks like we should be leading against other major regions,” she added. That said, investors should proceed carefully as they ramp up global exposure. Accidental concentrations U.S. investors already have an inherent home bias, Cox said – and that’s only been exacerbated by the runaway appreciation seen in the likes of tech juggernauts like Nvidia in 2023 and 2024. The downside, however, is that just as those Big Tech positions become too large as shares surge, investors’ concentration in U.S. exposure can also become outsized. Financial advisors then must handle the uncomfortable task of getting those investors to diversify away from some of those positions. “We’ve always felt clients need to have a globally diversified portfolio,” said Rafia Hasan, CFP and chief investment officer of Perigon Wealth Management in Chicago. “It’s been a tough conversation to have over the past 15 years where, even over the long term, the U.S. was outperforming international markets.” The tariff-driven shakeup in the U.S. market was enough to get investors asking about adding international exposure, though, she added. “This economic narrative around the U.S. and the economy – the sentiment had gotten pretty negative,” Hasan said. “Now some of that has somewhat dissipated, we will continue to hold that international exposure.” Diversification perks While Big Tech has driven returns in the U.S., other industries tend to dominate in international markets. “The biggest sector in developed markets is banks,” said Cox. “A dominant tech sector isn’t a thing in Europe for many reasons. Sometimes those more value-based sectors in the European Union can step in and help.” International exposure can also offer currency diversification benefits. “In theory what should happen is if you have higher inflation in the U.S., the dollar weakens a bit, and having international investments could help offset that,” said Roger Aliaga-Diaz, Vanguard’s global head of portfolio construction and chief economist for the Americas. How much exposure you’ll need to make a difference in your portfolio will depend on your individual circumstances. “If you take some of our portfolios, even in target-date funds, we typically have 60/40 U.S. and non-U.S. exposure,” Aliaga-Diaz said, noting that this split applies to the equity sleeve. Investors who have more than 50% of their allocation toward international names run the risk of giving up the diversification of the U.S. market, he noted. But go beyond 70% exposure in U.S. names, and you run the risk of chasing performance, he added. Hasan of Perigon Wealth said that global market cap breaks down along the lines of 65% U.S. and 35% international. “That is a good starting point to think of how much to have in international,” she said. “For the U.S. investor, it makes sense to have some home bias relative to the global market.” Think broad exposure rather than picking regions Avoid trying to read the tea leaves on which specific nations and international companies may emerge as winners as trade policy evolves. Instead, consider adding a large, broad diversified ETF to your roster. Broad international ETFs with gold ratings from Morningstar include the Vanguard FTSE All-World ex-U.S. ETF (VEU) and the iShares Core MSCI Total International Stock ETF (IXUS) . Both are sporting year-to-date returns of nearly 14%. “There are still too many unannounced policies, and this is where the time is more for diversification, rather than trying to guess the winners and losers,” Aliaga-Diaz said.
