You can keep buying non-U.S. stocks and ditching the dollar — or you can be smart

In H1 2025, international equities (MSCI All-Country World Index—ex U.S.) significantly outperformed U.S. stocks (MSCI USA), gaining 18.3% versus 6.3%. This 12-percentage-point spread represents a historically rare outperformance, exceeding 95% of monthly spreads since 1998. Despite this recent trend, the article cautions against assuming continued outperformance in the next six months, advising investors against extrapolating short-term results as a sustainable strategy.

Analysis

In the first half of 2025, non-U.S. equities delivered exceptional returns, with the MSCI All-Country World Index—ex U.S. gaining 18.3% compared to a 6.3% rise in the MSCI USA index. This resulted in a 12-percentage-point performance spread, a historically significant deviation that ranks in the 95th percentile of monthly spreads observed since 1998, according to FactSet data. The core insight presented is a strong caution against recency bias; the analysis argues that investors and even some professionals are mistaking this six-month period of outperformance for a sustainable trend. The underlying message is that such a pronounced and statistically rare divergence should be viewed as an anomaly rather than a reliable signal for continued international outperformance in the subsequent six months.

Key Decisions for Investors

• Investors should exercise caution before increasing allocations to non-U.S. equities, such as the ACWX ETF, based solely on the strong H1 2025 performance, as the historical rarity of the performance gap suggests a low probability of repetition.
• It is prudent to re-evaluate any recent strategic shifts away from U.S. equities and ensure the investment thesis is based on fundamentals rather than short-term momentum.
• Consider the potential for a reversion to the mean, where the significant performance gap between U.S. and international stocks could narrow or reverse in the coming periods, and position portfolios accordingly.