Just like the rock band Foreigner, one could forgive investors for wanting to take “a little time to think things over.”

Uncertainty is at a recent historical high in the US, and new tariffs (plus the threat of more) have put pressure on international markets. But international stocks have outperformed US equities so far this year, even as domestic investors have been “Cold as Ice” toward stock markets abroad, pulling out billions in assets in foreign markets, according to data from Morningstar Direct.

What’s to come is anyone’s guess, and investment specialists say diversification is really the only answer. But, being a bit of a Foreigner fan may benefit a portfolio these days. So far this year, the MSCI ACWI ex US Index has climbed 9%, compared with a decline of 3% on the S&P United States LargeMidCap Index.

“Head Games”

In addition to tariffs aimed at Canada, Mexico, and China, the White House on Wednesday announced a new round on automakers, levying 25% on imported cars and parts. Industry stocks widely fell the following day, including those of domestic manufacturers, who often rely on components and materials from around the world. Meanwhile, consumer confidence is tanking. A report last week from The Conference Board found:

  • Consumer confidence dropped by 7 points, falling to 93 (based on a baseline level of 100 dating back to 1985).
  • Confidence in the current economic situation fell by 4 points, going to 135.
  • The group’s Expectations Index dropped 10 points, hitting 65, the lowest in 12 years and below the level usually seen just before a recession.

With so many unknowns, uncertainty is to be expected, said Chris Tidmore, senior investment strategist at Vanguard’s Investment Advisory Research Center.“The most important thing an advisor does is keep their client invested in the market,” he said. “The more the market goes down, the more it impacts the client if they bail.”

That is assuming the US market continues to fall, and no one really knows whether that will happen, he said. An elixir for uncertainty is diversification, and that includes international allocations. Financial advisors know this, at least on the equity side. The bond side is a little different.

“Relative to the global market cap weighting, they tend to be underweight more on global fixed income than they are on international equity,” Tidmore said.

“That Was Yesterday”

In each of the past 10 years, the US was never the top country by equity returns, yet it was first when considering those years in aggregate, Tidmore said. “Israel was the best-performing market in 2024,” he said, adding that the prior year it was Italy. “I might as well throw a dart at a dartboard,” he said, noting “that’s the reason why we say you should own everything.”

In at least the first two months of the year investors pulled billions from international stock funds and put a modest amount into US equity funds. Data from Morningstar Direct show:

  • $11 billion flowed out of international equity funds in January and February, after investors funneled nearly $18 billion into the category last year.
  • $8 billion went into US equity funds, following total 2024 inflows of $168 billion.
  • Over $1 billion went into international taxable bond funds in January and February, after the category raked in $34 billion last year.
  • Investors poured $95 billion into US taxable bond funds in the first two months of 2025, following inflows of $448 billion last year.

“Double Vision.” A recent analysis of portfolios managed by financial advisors found an average fixed-income allocation of 15% to international, which is half the level that helps dampen volatility without significantly affecting returns, according to Vanguard. A strategy shown to further reduce volatility is to include currency-hedged bonds — no small detail, given that the main reason for allocating to fixed income is usually risk mitigation, Tidmore said.

“Urgent.” Relatedly, keeping clients from acting rashly amid market dives is critical, unless of course an advisor is prescient enough to rival The Simpsons. Take, for example, Brexit, the UK’s removal of itself from the European Union. “The market went down for two days and then completely rebounded, and it was like it didn’t happen,” Vanguard’s Tidmore said. “To figure out what is going to impact the market is very difficult to do.”

“Say You Will” (Stay Invested)

Maintaining an overweight exposure to foreign equities over the past six months has paid off, said Thomas Van Spankeren, chief investment officer at Rise Investments.

“While foreign equities have outperformed US equities to start 2025, the relative valuation between US and foreign equities is still the largest in a generation,” he said. His firm has advised clients who were underweight in the category to allocate more to foreign holdings via rebalancing.“This involves developing a strategy for managing capital gains as their domestic equity exposure is likely low-cost-basis large-cap technology stocks. Clients may be concerned about realizing capital gains with rebalancing,” he said.

Foreign equities have been a bargain for a while, another advisor said.

“International markets have been trading at a discount between 30% to 50% for years,” said David Demming, founder of an eponymous financial services firm. “It is why we buy low and sell high, with the trick being you sometimes have to wait a while. Price and value matter.”