Why I'm moving my money out of U.S. stocks — just like Warren Buffett

The author reports materially reducing U.S. equity exposure in 2025 in favor of overseas markets after non‑U.S. indexes substantially outperformed the S&P 500 (which is up roughly 17% year‑to‑date). MSCI-based returns for major Western countries (Jan. 19–Nov. 7), compiled by economist Justin Wolfers, show several international markets have been much hotter this year, prompting the author to recommend considering ETFs that track those foreign equities. For allocators, the piece highlights a relative‑return case for reallocating from U.S. large caps into higher‑performing international ETFs, based on recent trailing returns rather than company fundamentals.

Analysis

Market structure: The immediate beneficiary is non‑U.S. equity beta — ETFs and active managers tracking MSCI EAFE/ACWI ex‑US (eg. EFA, VGK, IEFA) capture inflows as U.S. underweights reallocate; exporters, cyclicals and commodity producers in Europe, Japan and select EMs gain pricing power while U.S. mega‑cap growth (QQQ/SPY) cedes relative performance. This signal implies a supply‑demand shift: cross‑border flows and index rebalances (MSCI tracking) are buyers of offshore equities, compressing local risk premia by several hundred basis points versus U.S. peers over weeks. Cross‑asset: weaker USD and higher local equity beta tends to lower implied vol in FX and equity options, raise commodity prices (oil, metals) and push yield differentials that can steepen non‑U.S. sovereign curves versus U.S. treasuries.

Risk assessment: Tail risks include a rapid USD re‑strengthening (>2–3% vs basket within 30 days), a Eurozone recession, or EM liquidity stress from funding shocks — each could erase 10–20% of non‑U.S. gains. Near term (days–weeks) watch ETF flows and FX; medium term (3–6 months) corporate earnings and rate differentials; long term (≥12 months) structural GDP and capex divergence. Hidden dependencies: passive ETF concentration, index inclusion timing, and derivative hedging can amplify moves; catalyst list: Fed/CBDC guidance, CPI prints, MSCI reweights.

Trade implications: Direct: establish 2–3% long positions in VGK and IEFA and 1% in EEM as a tactical 3–6 month trade, funded by a 2% trim of SPY/QQQ exposure — target +15–20% or USD weakness of 2% as exit. Pair: long VGK / short QQQ (equal notional) to express regional rotation while hedging market beta for 3–6 months. Options: buy 3‑6 month call spreads on VGK (strike +8–12% OTM) sized to 0.5–1% portfolio risk to leverage upside and cap premium; sell near‑term SPY covered calls to finance exposure.

Contrarian angles: The market may be under‑pricing the risk that U.S. fundamentals reassert (strong earnings, acceleration in AI capex) which would reverse flows quickly; crowded long EAFE/EM positioning risks 10%+ snapbacks on macro surprises. Historical parallels (post‑rate pivot rotations in 2019) show these moves can persist 6–12 months but are vulnerable to policy surprises. Watch triggers: 10‑yr UST yield down >50bp or USD down >3% likely to accelerate non‑U.S. rally; opposite moves warrant immediate de‑risking.

Key Decisions for Investors

• Establish a tactical 2–3% long position in VGK (FTSE Europe ETF) and IEFA (iShares MSCI EAFE) over the next 4 weeks, scaling in 25% increments; target a 15–20% upside or trim if USD strengthens >2% vs EUR/JPY within 30 days.
• Fund the above by reducing U.S. large‑cap growth exposure: cut SPY/QQQ weighting by 2% total and reallocate to the non‑U.S. basket to keep net equity beta neutral.
• Implement a long VGK / short QQQ pair trade equal notional for a 3–6 month horizon to capture regional outperformance while hedging market beta; close if pair underperforms by 8% or macro catalysts (Fed hike surprise) occur.
• Buy 3–6 month VGK call spreads (eg. +8–12% OTM) sized to 0.5–1% portfolio risk to leverage upside; finance by selling 30–45 day SPY covered calls to offset premium and reduce cost.
• If 10‑yr UST yield falls >50bp or USD declines >3% vs trade basket within 60 days, increase non‑U.S. exposure by another 1–2%; conversely, if USD rises >3% or European PMI drops >3 pts MoM, exit non‑U.S. longs immediately.