Many investors have believed a prime advantage of international equities and related funds is diversification. There’s something to that argument. But it didn’t ease the sting of ex-U.S. stocks lagging the S&P 500 for more than a decade leading up to 2025.
Helped in large part by U.S. tariff drama, international equities are having a moment this year. It’s one some market observers believe will prove durable. They further think it will highlight the diversification benefits of the asset class. Take the case of the WisdomTree International Equity Fund (DWM ). Flirting with a new 52-week high, that ETF is higher by 14.30%, well ahead of the 4.71% shed by the S&P 500.
The $544.4 million DWM tracks the WisdomTree International Equity Index. It’s beating the widely followed MSCI EAFE Index by 260 basis points year-to-date. Some important data points indicate DWM could extend that lead as 2025 moves along.
DWM Has Tailwinds
As Gabriela Santos, chief market strategist for the Americas at J.P. Morgan Wealth Management, notes, European and Japanese stocks have benefited significantly from the end of deflation and negative interest rates. She adds that since 2022, if Nvidia NVDA is stripped out, European and Japanese stocks actually beat domestic counterparts in terms of earnings growth.
“Boosting this recent momentum, U.S. policy changes are forcing much overdue policy changes elsewhere, such as fiscal spending in Europe,” observed Santos.
Should that earnings growth continue, it’d likely benefit DWM. That’s because the ETF devotes 20.65% of its weight to Japanese stocks. And eight of the other top nine country exposures are European economies. As DWM’s 2025 performance confirms, international stocks are proving surprisingly sturdy against the backdrop of U.S. tariff policy.
“Given that tariffs have been front-and-center, it may surprise investors that year-to-date international equities have outperformed the U.S. by the largest margin since 1993 and the dollar has weakened over 8% "As investors reassess the need for multiple diversifiers in portfolios, unhedged allocations to international equities are proving their worth as diversifiers to U.S. policy uncertainty,” added Santos.
Another factor that could play in favor of DWM over the coming months is that following years of U.S. stocks soundly beating international equivalents, investors in this country are under-allocated to the latter. Now, they’re playing catch-up. And that buying activity could lift ETFs such as DWM.
Foreign Investors Hedging Dollar Exposured
“Domestic investors have further to go in closing their international equity [underweights. And] foreign investors do too to close their U.S. overweights. The dollar’s decline helps fuel this as domestic investors use foreign currencies to diversify portfolios and foreign investors hedge their dollar exposure,” concluded Santos.
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