International equities: 2025 revival may be the start of a longer-term revival

International equities have begun to outperform the United States in 2025, driven by investors' shift toward more attractively valued markets and sectors such as financials and industrials. This outperformance marks one of the strongest starts for developed markets outside the US in over a decade. While a softer US dollar has enhanced returns, other factors like local economic growth, corporate earnings momentum, and policy reforms play crucial roles.

Investing internationally offers diversification benefits by reducing risks tied to specific sectors or countries. It also allows participation in global trends such as energy transition and infrastructure investment. Despite earlier gains this year, international equities still present discounted opportunities compared to their US counterparts.

For those underweight on international stocks, now is an opportune moment to diversify beyond US borders while maintaining exposure to its innovative market leaders. With valuation gaps persisting and signs of sustained rotation emerging, incorporating international equities into portfolios can enhance long-term returns amidst evolving global dynamics.