A notable rotation in global equity markets has defined the early months of 2026, with international stocks outpacing their U.S. counterparts. Kevin Grogan, chief investment officer of Systematic Strategies at Focus Partners, attributes the shift to a combination of cyclical catalysts and deeper structural forces.
In an interview, Grogan highlighted a weaker U.S. dollar, a sentiment reversal after years of international underperformance, and fiscal stimulus in Europe as key cyclical drivers. He also pointed to structural concerns: “U.S. equities entered this period at valuations rarely seen outside the dot-com era, and concentration in a handful of large-cap technology companies has reached a level that gives investors pause.”
The valuation gap remains stark. Even after a strong 2025, international equities trade at a meaningful discount to U.S. stocks. Grogan cautioned, however, that currency movements are unpredictable and that a resurgence in U.S. earnings growth, a flight to safety, or a dollar rebound could quickly reverse the trend.
Grogan emphasized a disciplined, long-term approach. “This is exactly why we treat an allocation to international equities as a structural portfolio decision rather than a tactical trade,” he said. He urged advisors to stick with their investment policy and let rebalancing decisions be guided by targets, not recent performance.
Currency exposure is another area of focus. For equities, Grogan noted that volatility is driven more by stock price swings than currency moves, so hedged and unhedged global equity portfolios show similar volatility. For bonds, currency moves have an outsized impact, making hedging more meaningful.
Grogan also addressed the importance of reframing diversification for clients accustomed to U.S. dominance. “Roughly 35% of the world’s publicly traded equity value sits outside the United States, so investing only in U.S. stocks isn’t a neutral or conservative choice—it’s a significant bet that one country will outperform indefinitely,” he said. He cited historical cycles: international equities led in the 1970s, 1980s, and 2000s, while the U.S. dominated the past 15 years.
Looking ahead, Grogan said valuation is the most reliable signal for long-term expected returns, but warned against using it for market timing. “Stock returns are much too noisy to use any single variable for timing the market in the short term,” he said. Other factors like relative earnings growth and the dollar’s direction are important but hard to predict.
Grogan stressed that the goal is not to abandon U.S. equities, especially given the strength of large-cap technology. “Large-cap U.S. technology companies have been exceptional businesses, and the earnings have largely justified the enthusiasm,” he said. Instead, he advocates a balanced approach: maintain meaningful U.S. exposure while complementing it with internationally diversified holdings.
For advisors, Grogan’s message is clear: global diversification is a long-term risk management strategy, not a short-term performance call. As the Federal Trade Court Strikes Down Trump's 10% Global Tariffs, the landscape for international investing may shift further. Meanwhile, Morningstar, Perplexity, and Plaid Integrate to Streamline Advisor Research with AI, offering new tools for portfolio analysis.
