Why International Diversification Mattered in 2025 and What It Means for Investors Now

The numbers from 2025 tell a compelling story. While the S&P 500 delivered a solid 16.4% return, international markets surged ahead with gains of 28.6%, as measured by the MSCI World ex USA Index. 

For investors who had grown comfortable with U.S.-centric portfolios after two strong years of domestic gains, 2025 served as a timely reminder that diversification is not just a textbook principle. It is a practical strategy that can meaningfully impact returns. 

What Drove International Outperformance? 

Several factors converged to create favorable conditions for international equities. The U.S. dollar weakened by more than 10% in the first half of 2025, driven largely by trade policy uncertainty. A weaker dollar naturally benefits foreign stocks, as their underlying currencies gain relative value. 

Valuations also played a role. After the S&P 500's 52% combined gains in 2023 and 2024, much of it concentrated in a handful of large technology companies, international stocks simply offered better value. Asian markets benefited from the global expansion of AI investment, while European markets offered something increasingly valuable: predictability. 

Looking Ahead 

As the Magnificent 7 have grown to represent an outsized share of U.S. market indexes, concentration risk has become a legitimate concern for investors seeking balanced portfolios. 

"While the Magnificent 7 has been spectacular, people have started saying 'it's time to diversify into other economies, and stocks look a lot cheaper outside the United States,'" said Wayne Wicker, President of Opal Capital."And I think they will continue to do so now, as they look at 2026." 

The conditions that favored international stocks in 2025 have not disappeared. For investors reviewing their portfolios, it may be worth considering whether their current allocation reflects the full range of opportunities available in today's global markets. 

Opal Capital was recently featured in The Washington Post discussing these market trends. Read the full article here.