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The rules of global diversification are changing
U.S. and non-U.S. equity correlations have been rising for years
International investing was once seen as a source of diversification and risk mitigation for U.S. investors, but the world is changing. This theory mostly held up until 1997, but since then the impact of globalization has resulted in a greater correlation between U.S. and non-U.S. equities, causing a decline in the diversification benefits international equities provide portfolios. So can investors forget international investments altogether? No, but they should re-think what global investing means for their portfolios. By focusing on top individual companies regardless of domicile rather than being limited by rigid geographic allocations, investors will have a broader opportunity set that can potentially generate better outcomes.
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