21 Aug 2026 - Chart to Watch: Looking beyond U.S. market leadership

Portfolio Managers Christopher O'Malley and Julian McManus discuss the factors supporting markets outside the U.S. and where they continue to find attractive opportunities.

Source: Bloomberg. Chart shows the annual difference in total return (%) between non-U.S. equities, as represented by the MSCI ACWI ex USA Index, and U.S. equities, as represented by the S&P 500® Index. Positive values indicate years in which international equities outperformed U.S. equities. *Data for 2026 is year-to-date as of 31 July 2026. Past performance does not predict future results.

While a fluid macro environment may continue to drive bouts of volatility, we do not believe last year's strong performance from ex-U.S. equities should be viewed as an aberration. In our view, a combination of secular trends and long-term structural shifts are shaping an attractive environment for active stock selection. European banks have generated their strongest profitability in more than a decade while still trading at a discount to many U.S. peers, and defense firms stand to benefit from a sustained ramp-up in military spending. We also see opportunities in leading technology suppliers at the heart of the AI buildout, select luxury consumer companies, and Japanese financials positioned to benefit from a supportive rate backdrop.

Christopher O'Malley, Portfolio Manager

• After outperforming U.S. equities by the widest margin since 2009 last year, international stocks extended their lead through the first half of 2026. If the trend holds, it would mark the first consecutive years of ex-U.S. relative outperformance since before the Global Financial Crisis (GFC) in 2008-2009 - a period that saw a multi-year stretch in which non-U.S. equities outpaced their U.S. peers.
• While U.S. equities should continue to benefit from powerful secular trends, we believe many investors accustomed to U.S. leadership may be overlooking the potential of international equities as a source of differentiated returns. In addition to providing access to themes such as artificial intelligence (AI) and the related infrastructure buildout, overseas markets offer a broader mix of geographies, policy environments, and sector exposures, creating a diverse set of potential return drivers.
• We continue to find attractive opportunities in companies with durable competitive advantages, strong free cash flow growth, and valuations that do not fully reflect their long-term potential.

*Data for 2026 is year-to-date as of 31 July 2026. Past performance does not predict future results.

IMPORTANT INFORMATION

Actively managed investment portfolios are subject to the risk that the investment strategies and research process employed may fail to produce the intended results. Accordingly, a portfolio may underperform its benchmark index or other investment products with similar investment objectives.

Aerospace and defense industries can be significantly affected by changes in the economy, fuel prices, labor relations, and government regulation and spending.

Artificial intelligence ("AI") focused companies, including those that develop or utilize AI technologies, may face rapid product obsolescence, intense competition, and increased regulatory scrutiny. These companies often rely heavily on intellectual property, invest significantly in research and development, and depend on maintaining and growing consumer demand. Their securities may be more volatile than those of companies offering more established technologies and may be affected by risks tied to the use of AI in business operations, including legal liability or reputational harm.

Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.

Equity securities are subject to risks including market risk. Returns will fluctuate in response to issuer, political and economic developments.

Financials industries can be significantly affected by extensive government regulation, subject to relatively rapid change due to increasingly blurred distinctions between service segments, and significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition.

Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets.

Technology industries can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, competition from new market entrants, and general economic conditions. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole.