International stocks are the best trade for the next five years, according to Bank of America investor survey

Bank of America's fund manager survey indicates a strong preference for international equities, with investors anticipating them to outperform U.S. assets over the next five years, as the iShares MSCI All-Country World Index ex-U.S. ETF (ACWX) has already outperformed the S&P 500 by 15% to 2.6% year-to-date, marking its largest outperformance since 2008. This shift is coupled with a decline in U.S. dollar positioning to 20-year lows and a move towards gold, now the most crowded trade, while investors are overweight Eurozone, emerging markets, and banks, and underweight U.S. stocks, the U.S. dollar, and energy.

Analysis

A significant shift in investor sentiment is underway, with Bank of America's latest fund manager survey revealing a strong conviction that international equities will outperform U.S. assets over the next five years; less than one quarter of surveyed investors expect continued U.S. dominance. This sentiment is underscored by the iShares MSCI All-Country World Index ex-U.S. ETF (ACWX) delivering a 15% year-to-date return in 2025, substantially outpacing the S&P 500's 2.6% gain and marking ACWX's largest outperformance since its 2008 inception. Concurrently, U.S. dollar positioning has fallen to its lowest level in over two decades, influenced by President Trump's trade policies, including steep tariffs, which have cast doubt on the currency's safe-haven status. This environment, coupled with heightened geopolitical tensions, has propelled 'long gold' (favored by 41% of investors) to become the most crowded trade for the third consecutive month, displacing the 'long Magnificent 7' trade (now favored by 23%), which had previously held the top spot for 24 months. Fund managers are actively rotating capital, exhibiting an overweight position in Eurozone equities, emerging markets, and banks, while being underweight U.S. stocks, the U.S. dollar, and energy, according to the June survey. On a micro level, Truist has upgraded Etsy (ETSY) with a $60 price target, implying approximately 11% upside, and suggests buying the dip, citing its relative insulation from the elimination of the De Minimis tax exemption in China compared to competitors like Temu (PDD) and Shein, which are reportedly raising prices due to Chinese tariffs and the exemption's end.

Key Decisions for Investors

• Investors should evaluate increasing exposure to international equities, particularly ex-U.S. markets, in light of current outperformance trends and strong fund manager conviction.
• Closely monitor U.S. trade policy developments and their ongoing impact on U.S. dollar valuations, as this will likely influence relative asset attractiveness and the outlook for safe-haven assets like gold.
• Consider strategic allocations towards Eurozone equities, emerging markets, and the banking sector, while potentially underweighting U.S. stocks and energy in line with current institutional sentiment.
• For specific U.S. equities, seek companies like Etsy that may demonstrate resilience to specific trade policy changes, such as the De Minimis exemption, but conduct thorough due diligence on individual names.