Despite record highs in the S&P 500 and Nasdaq, funds that exclude U.S. equities are drawing robust inflows as institutions and individuals trim home bias and hunt for cheaper growth abroad.

Vienna

Global equity investors are rediscovering the world beyond the United States. Even as Wall Street hovers near record territory after a dramatic 2025 rally, money has been streaming into funds that explicitly exclude U.S. stocks. The move, asset allocators say, is part catch‑up after years of American dominance and part insurance against a market that has become unusually concentrated at the top.

Data providers and fund sponsors point to a clear pattern: after a stop‑start first half, inflows to international and “ACWI ex‑U.S.” strategies accelerated through mid‑year and into the autumn. February’s surge into broad international ETFs such as emerging‑markets and developed‑Europe trackers signaled resurgent demand among financial advisors and model‑portfolio builders. By July and August, net subscriptions into global ex‑U.S. equity funds had clocked their strongest monthly totals in years, according to industry tallies, even as many U.S. stock funds saw outflows or only modest net new money.

The paradox is striking because U.S. benchmarks have been setting—and resetting—records. The rally has persisted through trade shocks and a stop‑and‑start economy, with megacaps in technology and communications once again doing the heavy lifting. Yet the very features that made the U.S. irresistible—liquidity, tech leadership, and index heft—are also pushing allocators to diversify. The 10 largest companies’ swelling share of the main U.S. equity gauge is a flashing yellow light for risk teams wary of single‑country and single‑sector concentration.

“Clients aren’t abandoning the U.S.; they’re rebalancing to a world that still exists outside Silicon Valley,” said the head of multi‑asset solutions at a large European private bank. “Valuations overseas are lower, earnings revisions are broadening, and currency dynamics have become a tailwind. It’s not a wholesale rotation—it’s prudent housekeeping.”

Momentum picked up early in the year as international funds climbed the leaderboards of monthly flows. Products tracking developed markets outside the United States and emerging markets—think tickers that mirror MSCI ACWI ex U.S., Europe‑wide benchmarks, or broad EM baskets—drew multibillion‑dollar inflows. The interest was not confined to one region: Japan’s corporate‑governance reboot, Europe’s high dividend yields and improving industrial order books, and India’s capex boom all featured in buy‑side notes through the summer. More recently, strategists say, the case for ex‑U.S. has widened to Canada and parts of Latin America as commodity prices and local policy paths diverge from the U.S. cycle.

Two forces explain the timing. First, dispersion. U.S. equities still dominate global indices, but 2025 performance gaps have narrowed and, at points, reversed. International baskets have periodically outpaced U.S. peers this year, aided by cheaper starting valuations and idiosyncratic growth drivers outside of the artificial‑intelligence supply chain. Second, mechanics. After a multi‑year run in American megacaps, many institutional portfolios drifted far above strategic policy weights to U.S. stocks. The easiest way to pull exposure back down is to add to ex‑U.S. sleeves.

Advisers also cite lower hedging costs and a more balanced macro backdrop. With major central banks at or near the end of their tightening cycles, forward earnings outside the U.S. are no longer being discounted as heavily. A softer dollar at times this year has given a modest kicker to unhedged returns, though CIOs caution that currency moves can cut both ways.

On Wall Street, the mood is hardly dour. Bank executives and market strategists describe the U.S. advance as “high‑quality” and supported by improving liquidity and the ongoing AI investment wave. But even bullish voices have encouraged investors to add “convexity”—that is, protection—via options and to broaden equity exposure by geography and sector. In practice, that has meant pairing U.S. tech with non‑U.S. industrials, financials, and consumer names that are still trading at discounts to their own histories as well as to the U.S.

Flows confirm the caution‑with‑optimism message. August brought one of the strongest months of net subscriptions across long‑term funds this year, yet the skew favored taxable bonds and international equities rather than pure U.S. stock funds. Within exchange‑traded products, fixed‑income demand has been resurgent in 2025, but equity investors who stayed active increasingly looked outside the United States for incremental risk.

Valuation is a powerful magnet. On simple price‑to‑earnings measures, broad ex‑U.S. indices continue to trade at double‑digit percentage discounts to the S&P 500. Sector mix explains part of the gap, but not all of it. Corporate reforms in Japan have elevated return‑on‑equity targets and boosted buybacks; Europe’s energy and industrial champions have tightened capital discipline; and several emerging markets have reduced external vulnerabilities, allowing local policy easing to support growth. For allocators seeking beta at a lower entry multiple, the menu beyond the U.S. looks tempting.

Performance breadth is another draw. In the U.S., index gains have remained tightly clustered around a handful of megacaps. Abroad, leadership has been more evenly distributed across small‑ and mid‑caps as well as cyclicals. Portfolio managers say that mix offers a different source of potential upside if global manufacturing and trade stabilize into 2026, and it reduces the dependence on a single theme such as generative AI to carry returns.

The risks to the ex‑U.S. thesis are real. Europe’s growth has been uneven; the U.K. is wrestling with soft wages and output; and China’s policy path remains a swing factor for emerging‑market sentiment. Meanwhile, geopolitical flare‑ups can quickly reorder factor exposures. That is why the recent shift has looked more like methodical reweighting than a stampede—steady weekly buying into diversified, low‑cost vehicles rather than hot‑money bets on a single market.

For retail investors, the trade has often flowed through one‑ticket “world ex‑U.S.” ETFs and all‑cap international index funds that sit neatly alongside a core U.S. holding. For pension funds and endowments, it has meant topping up active global mandates with explicit ex‑U.S. constraints to avoid overlapping the already supersized American stake elsewhere in the portfolio. Multi‑asset teams have simultaneously trimmed U.S. growth allocations and added to value‑tilted managers in Europe and Japan to balance style risk.

Looking ahead, allocators say the test for the ‘Great Rebalance’ will be earnings follow‑through. If improving order books in Europe and Japan translate into sustained margin gains, and if emerging markets continue to deliver domestic‑demand‑led growth, the valuation discount could close further. A renewed surge in the dollar, a sharp slowdown in global trade, or a reversal in commodity trends would complicate the story. But with the U.S. market still near the top of its historical valuation range—and its leadership unusually concentrated—the case for keeping international sleeves funded looks compelling.

The bottom line: investors are not fleeing America’s capital markets. They are reducing concentration risk and refreshing exposure to parts of the world that have been starved of flows for most of the past decade. In a year when bonds are back in favor and equity bulls remain cautiously constructive, the quiet winner may be diversification itself—implemented not by prediction but by policy discipline.

What to watch next: third‑quarter earnings season will reveal whether margin resilience remains a U.S. privilege or is broadening across regions. Central‑bank signaling into year‑end could influence currency‑hedging decisions. And after a run in commodity prices earlier this year, the path of energy and metals will shape relative performance between resource‑heavy markets and the U.S. tech complex. For now, the money is speaking—and it’s saying “look beyond the U.S.”