For years, U.S.-based investors ignored international markets and the argument for geographic diversification in stocks, and they paid no penalty for their provincial approach. Booming large-cap U.S. stocks trounced their overseas counterparts. But many investors woke up to the opportunity in foreign stocks in 2024 and 2025 as concerns about the valuation of the U.S. market relative to the world and its concentration in a narrow technology theme intensified. The trade was timed well, and it is still working, with large-cap international stocks continuing to beat the S&P 500 in 2026. Can the overseas bull market continue?
David Botset, head of strategy, innovation and stewardship at Schwab Asset Management, says there are no signs yet that investors are rushing to take gains from international winners, with the 2025 trend continuing in 2026. “We are seeing far more flows into international index across the industry,” he said on this week’s “ETF Edge.”
“$90 billion in foreign large-cap blend,” he said.
And it is not just performance chasing, according to Botset. “It starts with the returns,” he said, but he added that investors are starting to think more about the benefits of diversification from multiple angles, whether it is business cycle or sector diversification offered by geography, especially as the concerns around the narrowness of U.S. stock leadership remain in focus.
And then there is the U.S. dollar, which can juice the returns of international holdings for U.S.-based investors.
Josh Jones, portfolio manager at Boston Partners, said on “ETF Edge” that since the pandemic, the setup for international stocks has been “incredibly attractive” for fundamental value investors like his firm, with much lower valuations in large-caps overseas than in the U.S. Healthy earnings growth and healthy return on capital profiles support the P/E analysis. But the weakness in the U.S. dollar is a trend that overlapped with the move by investors into foreign stocks throughout 2025, and it is a factor that should not be overlooked by investors, Jones said.
“When I look back at history, the best periods for international — for U.S. investors — have been when it is generating good returns in local markets and you are getting a weak dollar environment translated back for U.S. investors, and that’s what kicked things off in 2025,” he said. “We’ve done really well for the last 18 months,” he added.
Jones cautioned that neither he nor his firm are in the business of forecasting currencies, but he said when you look at recent headlines, including U.S. Treasury Secretary Scott Bessent’s desire to lower interest rates by aggressively buying back bonds, “it is reasonable to assume we could see some dollar weakness, and that could continue to kind of help support returns in international equities from a dollar-[based] investor standpoint.”
To date, the bond market has expressed skepticism that Bessent’s plan will work as intended, and the idea has attracted many high-profile doubters, including hedge fund manager Stanley Druckenmiller, who wrote in a recent Wall Street Journal op-ed that “the only thing that durably lowers long-term yields: address the primary deficit.”
As a portfolio manager, Jones said he always starts by looking at fundamental value metrics, and company-specific business momentum and earnings growth. Even if returns are not aided by a weak dollar, investors need to be able to have confidence the stocks will generate alpha over time. The John Hancock Disciplined Value International Select ETF (JDVI), which Boston Partners serves as subadvisor on for the insurer, is a concentrated portfolio that has a high active share compared to the core international index, holding between 30-50 stocks and which at any time could be “zero Japan or all Europe,” Jones said. But the investment goal is to identify companies that it thinks can outperform on a three- to five-year basis.
But in those periods of time when the dollar is weak, currency is an added benefit, he said, with one important caveat. Investors need to make sure that the foreign stocks they are holding are not overly reliant on U.S.-based revenue, which can dilute the currency benefit.
Dollar performance over past five years as tracked by Invesco DB US Dollar Index Bullish ETF (ticker symbol: UUP).
Currently, Jones said the sectors of the overseas large-cap market that investors may benefit from the most are materials, industrials, and metals and mining. In past periods when there is a weak dollar, such as the 1970s and 2000s, international did very well and these periods were associated with real assets and commodities super-cycles, Jones said. Today, central banks around the world continue to add gold to reserves and the electrification trend globally should continue to be a driver for metals such as copper, he added.
It is true, Jones said, that metals and mining companies have historically been difficult businesses to trust over the long-term for investors — capital intensive companies that have tended to have too much leverage while making questionable capital allocation decisions. But metals and mining companies have bucked that reputation in the past few years, Jones said, and that is a trend “could potentially stick around for a few years.”
“For U.S. investors, it fits the profile of historical cycles,” he said, and with “companies with exposure to sectors you don’t see as much of in the S&P 500,” he added.
The overseas stock story does remain very much a large-cap one, with Schwab seeing much more interest, according to Botset, in its large-cap Schwab International Equity ETF (SCHF), which is approaching $70 billion in assets and has added $12 billion since early 2024. SCHF is up close to 17% this year, versus 13% for the S&P 500. Its developed markets Schwab International Small Cap Equity ETF (SCHC), has not generated similarly strong interest because the stronger fundamentals overseas are “largely playing out in the large-cap space,” he said.
International dividend stocks, such as those held by the Schwab International Dividend Equity ETF (SCHY) are finding some favor with investors due to all of the uncertainly in the markets, from inflation to geopolitics and commodities supply shocks, concerns that interest more investors in the sustainability of strong dividend payers, Botset said, but it is still a small fund compared to SCHF, approaching $2.6 billion in assets.
The recent performance by international stocks has narrowed the valuation gap with the U.S. market, but it has not closed it. In the decade from 2010-2020, so many investors ignored value-based companies — from banks to the materials and industrials plays — that their cost of capital went up and their P/Es were depressed even more as a result, Jones said. That shunning of international stocks took P/Es down to as low as 10 times forward earnings, and even if JDVI is now trading at a P/E of 12 — up from a range of 9 to 10 at the start of 2025 — the S&P 500 remains at a valuation of 16 to 17 times earnings, and that is when you remove the Mag 7 component from the valuation analysis. “So there is still a valuation argument there,” Jones said.
Botset said the first step for many investors is to check their current allocations and see if either intentionally or unintentionally they have “over-pivoted” to the U.S. market. If investors intended to have a 10% to 20% allocation to international as part of their strategic long-term planning, that could have eroded to as little as 2% to 5% given the extent of the bull market in the S&P 500 in recent years. Investors in this situation would benefit by coming back to strategic long-term weights, he said.
To hear more from these managers on how they are positioned in the current market, watch this week’s full “ETF Edge” show above or listen to the podcast.
Sign up for our weekly newsletter that goes beyond the livestream, offering a closer look at the trends and figures shaping the ETF market.
