Is Now the Time to Make International Investing Great Again?

ATLANTA (May 6, 2025) - Due to early deadlines, my column in the April/May issue “Returns vs. Risk Adjusted Returns,” was submitted on March 6th. I anticipated some deterioration of the tech-weighted S&P 500 and specifically suggested reallocating away from the higher-valued stocks driving that index. What could not be anticipated was that the US would embark on a global tariff war, and the index would register its largest two-day loss in history. On April 3rd and 4th, the S&P 500 lost around 10%, or roughly $6 trillion in market cap.

The recent uptick in volatility has been significant and, for many investors, disturbing. While ‘American Exceptionalism’ was the battle cry for Trump’s first few weeks in office, recent market action suggests investors are more unsettled about the future. Clouding the outlook are tariffs, inflation and interest rates, not to mention geopolitical issues in Ukraine, China, Iran, and other hot spots. Moreover, whether you like this administration or not, in my view, the frequent and mixed messaging has only added to the confusion.

Wall Street is notorious for devising new and creative ways to make money and is thereby littered with a variety of funds and investment strategies to this end. During my time working closely with professional managers, an investment strategy that I found particularly interesting was Global Macro. Global Macro analyzes and predicts moves in the market based on large-scale political and economic events. These strategies track and forecast interest rates, global trade patterns and world politics with the idea that when properly predicted, these can disproportionately impact certain stocks, sectors and geographies.

While I concede that macro trends more recently drive the bulk of investor returns, especially as the market has become increasingly correlated, I have always considered this "crystal ball" investment approach extremely difficult to repeat. In the current volatile environment, where global macro trends have an outsized influence on the market, this begs the question: What is a good investment strategy when the macro backdrop is more unpredictable? My suggestions: (1) stay centered on fundamentals; (2) be especially wary of high-priced/momentum assets; and (3) look to identify areas of the market that seem poised for appreciation, and conversely, where the downside feels reasonably truncated.

With the above in mind, I will turn to the title of this article, “Is Now the Time to Make International Investing Great Again?” To be completely transparent, I have had a sizable ex-US allocation for the last several years and recommended increased international allocations to our Access clients. These allocations proved particularly durable during the recent US drawdown, and the longer-term case in favor of more exposure outside the US is also compelling.

From an equity valuation standpoint, the rest of the world appears strikingly cheap compared to the US. For example, in January, JP Morgan pointed out that European equities generally trade at less than 15x forward earnings, while the same-size companies in the US mostly trade at around 19- 20x forward earnings.

While inexpensive alone is not a sound investment strategy, there are other reasons to consider increasing ex-US exposure. The US has enormous debt, and the dollar is starting to drift lower after enjoying a protracted multi-year run. All else equal, a weaker dollar should boost ex-US equities and, more fundamentally, there are many ex-US companies, with good balance sheets and earnings growth, that are arguably mispriced. Fund flows, or how larger institutions are investing/changing allocations, have recently started to favor ex-US allocations. Finally, as witnessed in early March of this year, there is also a diversification benefit associated with some exposure outside the US, as these allocations are historically less correlated.

To be clear, this is not a call to sell all of your US equities. I remain constructive on the US, albeit more selectively, and I believe US companies are among the best in the world. The case for American Exceptionalism is not lost on me. I am also not pretending that ex-US is a panacea for investors. But, due to indiscriminate pricing, there are high-quality companies and unusual investment opportunities outside the US. This part of the market seems long overdue for some re-rating.

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Nic Lancelotta is an investment manager who spent 17+ years working closely with large institutional investment managers in the United States. Nic is the co-founder of Access Capital Management, LLC.

Note that all information contained herein is provided to you solely for informational purposes. This document does not constitute an offer to purchase any securities. This document does not create a client relationship with Access Capital Management, LLC or any of its affiliates. Note that Nic Lancelotta is an active investor in public and private securities and one or more conflicts may exist. Access Alternatives, LLC (“Access Alts”) is an alternatives focused investment manager. Access Investment Management, LLC (“AIM”) is an SEC registered investment advisor. Access Alts and AIM are separately owned and operated.

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