Greenleaf Trust has long been an advocate of diversifying equity portfolios across the stocks of both US and non-US companies. However, over the past several years, the returns of domestic equities have consistently outpaced non-US equities. This has led some to question whether investing in non-US equities is still prudent. Additionally, recent high profile geopolitical events, most notably the current Russian incursion into Ukraine, have led to a focus on the potential risks of investing outside of the US.

In light of these concerns, in this article we will briefly revisit the key arguments for diversifying a stock portfolio into non-US companies. We will then take a look at current Russian and broader non-US exposure within Greenleaf client portfolios to understand better what global equity diversification looks like in “real time.”

Why diversify into non-US stocks?

Gain Exposure to a Broader Set of Leading Companies

Nearly 40% of the world’s equity market capitalization is outside of the US, including many of the world’s largest and most successful companies. Expanding the opportunity set to non-US markets also results in a significantly larger number of companies available for investment. As an example, within the MSCI All Country World Investable Market Index, there are approximately 2,600 broadly investable publicly-traded companies listed in the US and approximately 6,700 listed in non-US markets.

Access Diversified Return Drivers

US stocks have experienced stronger earnings growth that non-US stocks in recent years, which has been a key driver of returns. However, from a valuation perspective, non-US stocks currently appear cheaper than US large-cap stocks, both on an absolute basis and relative to their respective recent histories. Non-US stocks also offer a meaningful yield advantage.

Additionally, non-US stocks offer exposure to a number of foreign currencies. While we believe that currencies should have no additive or negative affect to returns over the long term, over shorter time frames they can offer favorable diversification benefits.

When all is said and done, the inclusion of non-US equities into a US equity portfolio has consistently resulted in a reduction of overall volatility and downside risk over longer timeframes.

Exposure to Other, Faster Growing Economies

Today, the US gross domestic product (GDP) comprises only 25% of global GDP, down from 35% in 1985. Meanwhile, emerging and developing economies now account for 40% of global GDP, nearly twice what they contributed in 1985, and are expected to continue to grow faster than developed economies in the coming years.

Russia: testing global equity diversification in real time

The incursion by Russia into Ukraine is a significant event with substantial ramifications for markets the world over. It has generated significant stock market volatility. Russia’s stock market itself has fallen 48.6% month to date and 53.1% year to date through the date of this writing (2/24).

However, while the onset of war in Europe has global market implications, in aggregate our clients have minimal exposure to Russia. A balanced portfolio comprised of 60% global equities and 40% bonds aligned with our recommendations has approximately 0.3% exposure to Russian markets.

It is important to note that our typical global equity allocation is diversified across many non-US markets. Markets around the globe have not responded in a uniform fashion to the Russian incursion and reflect other dynamics affecting the global economy, such as the rise in commodity and energy prices.

In developed markets, while European countries (-11.1%) have underperformed the S&P 500 (-9.8%) year to date, developed Asian countries have outperformed (-6.7%) by over 300 basis points. In fact, in emerging markets, there are actually more countries that have experienced a positive return year to date (13) than have had a negative return (12), with Latin American (+9.5%) and Gulf Coast (+8.8%) countries seeing particularly strong outcomes. In the aggregate, both developed markets (-9.6%) and emerging markets (-6.2%) have outperformed the S&P 500 year to date, demonstrating the benefits of global diversification despite the headline risk.


When unexpected economic events or geopolitical maneuvering lead to an increase in the risk of certain assets or regions, it can be easy to forget the fundamental principles and insights informing the structure of one’s investment portfolio. Upon reexamination, we believe that the reasoning behind a globally-diversified approach to equity investing remains sound, and that global diversification can provide benefits even in the thick of high short-term volatility.