This has been a good year for international stocks. In a turnaround from recent years, Europe and many emerging markets have outperformed US equities in 2025. The depreciation of the US dollar has magnified gains for US investors with global exposure.

How much global exposure US investors actually have in their portfolios is an open question. A protracted period of strength for US equities has led to a decline in market share for international-stock funds. The artificial intelligence boom is only the latest technology trend whose benefits have accrued disproportionately to US companies. As a result, the US share of global equity market value has climbed an incredible 20 percentage points since 2010. Despite representing approximately one-fourth of the global economy, US stocks exceed 62% of global equity market value, as measured by the US weight of the Morningstar Global Markets Index. It’s a striking imbalance.

With AI dominating the investment conversation and contributing to strong gains for US stocks in 2025, I’d like to share an excerpt of a conversation I recently had with BlackRock’s Mike Pyle for Morningstar’s The Long View podcast. Pyle was talking about the diversifying potential of taking both long and short positions in stocks around the world. I followed up to get his views on global exposure within a portfolio.

Dan Lefkovitz: And I wanted to zero in on the global aspect of that strategy. Obviously, global equity investing has paid off this year, but going back 10, 15 years, the US market has really been the place to be. I’m curious what you’re thinking in terms of allocations to international equities?

Mike Pyle: I would say this is one of those points where market neutrality actually really matters a lot. So, yes, 100% right that at some level, the trade of the last, not just a couple of years, the last 15 years has been to be overweight the United States versus the rest of the world. But that’s different than saying that there isn’t alpha in other markets elsewhere in the world when you’re going long and going short in a market-neutral way. So, investors aren’t exposed to the beta of the rest of the world. But what they’re able to gain access to is alpha insights that make accurate forecasts about companies that are going to outperform, companies that are going to underperform, and generate return from the difference between those two things. And importantly, to the point I was making earlier, having a bigger investment opportunity set, being able to reach across global markets, just not US markets, expands the reach of the strategies that the systematic team has developed over time and expands the number of alpha opportunities that are available to generate return for clients, again in this market-neutral way. So, 100% right, the US has outperformed. We can talk about the outlook for that. But this strategy is benefiting by being neutral to the market, but capitalizing on the expanded number of opportunities that come from being invested globally, not just in the US.

Lefkovitz: Well, I’ll take you up on your offer to share the outlook. A lot of folks are wondering if this is the time to increase their allocations to international.

Pyle: The principal driver of the US equity market since its lows in April, just as it has been for the last couple of years, a strong performance, really, is that those exposures that are giving you access to the theme around AI transformation, the mega trend around AI transformation. And importantly, this goes to the point around a more uncertain, more unstable macro environment. In some ways, we think diversification is obviously no less important than it ever has been. But getting diversification, not just across geographies, but also mega trends like the AI transformation, is vital for building portfolios that are going to generate the outcomes that investors want.

What does that mean? It means, bottom line, that continuing to be exposed to the US equity market, because the US equity market is providing the exposure to this underlying theme of AI transformation that really no other equity market globally can do, still needs to be a core part of portfolios. But again, whether you’re looking at geographic diversification or thematic diversification, being sure you’re being thoughtful about just how much of the US you want, just how much AI you want, is a really important question as well. And building balance around that is going to be the right way of thinking about building a portfolio that can generate return, but also resilience.

Lefkovitz: What about currency diversification? You mentioned the dollar weakening earlier in our conversation. Do you think it’s important for investors to diversify their currency exposure?

Pyle: I think that this is a particularly important point for global investors and a conversation that I regularly have when I’m abroad, whether that’s in Europe or Canada or Asia. A number of investors globally allowed their hedge ratios to move considerably lower over the past couple of years as the US has outperformed. And so, increasingly, they were taking US equity exposure, exposure to US assets generally, on an unhedged basis. And this year, that’s been a difficult spot to be. Even as the S&P is up a little more than 13%, the dollar is down a little more than 10%. And so the experience this year for a Europe-based investor, for example, of those US exposures, hasn’t been the most favorable one. And so I think what it’s causing investors to do is to say, not, is this the end of the dollar? Not, am I going to bail on the dollar? But do I want to move away perhaps from the extended degree of unhedged exposures I had to the US back toward something that looks more historically normal in terms of that hedging ratio, that balance between having US exposure, but hedging out some of the currency?