In the second installment of a three-part series on international equities, Artisan Partners' Portfolio Perspectives team makes a case that will challenge investors who believe owning global companies through a U.S.-listed index is diversification enough. Published on Artisan Canvas, the full piece1 is a methodical, evidence-driven argument that international exposure is about economic substance, not simply a flag on a map.
The Starting Premise
The team does not pretend to know when international markets will next lead. That honesty is the foundation of the argument. "If investors cannot reliably predict which market will lead next, what does international exposure add to a portfolio? The case for diversification does not depend on knowing when international equities will outperform. Uncertainty about future market leadership is precisely why diversification matters."
This framing is important. It removes the burden of forecasting from the allocation decision entirely. Diversification is not a tactical bet on rotation. It is structural discipline against concentrated outcomes.
The Shrinking Opportunity Outside the U.S.
The U.S. market's dominance in the global investable universe is not trivial. The U.S. accounts for roughly 63% of the global investable equity universe, up from 43% following the 2008-2009 global financial crisis. That concentration is real, and it shapes how advisors need to think about what they are actually holding when a portfolio is heavily indexed to the S&P 500. But the team's point is that the remaining 37% still represents thousands of companies across developed and emerging markets, spanning different economies, currencies, and industries. The opportunity set outside U.S. borders remains substantial.
Sector Composition: Where the Real Divergence Lives
The team's most operationally useful insight concerns sector composition. The S&P 500 is heavily tilted toward technology. International developed markets carry larger allocations to financials and industrials. Emerging markets offer yet another mix entirely.
The team goes further, pointing out that traditional classifications understate the gap. "Alphabet and Amazon.com, for example, fall outside the information technology sector despite their significant technology businesses. Including them would bring the S&P 500® Index's technology-related exposure closer to 47%."
That figure is not incidental. Nearly half the S&P 500, properly measured, is technology-adjacent. An investor who believes they are diversified across sectors inside a U.S.-only allocation may be more concentrated than they think.
The AI Cycle as a Live Example
The team cites the current artificial intelligence investment cycle to illustrate how sector composition translates into real portfolio dynamics. "The current artificial intelligence investment cycle illustrates this dynamic, with capital spending by US technology leaders also benefiting semiconductor, equipment and industrial companies across global markets." International exposure, in this context, captures second-order beneficiaries of a U.S.-led investment wave. The exposure diversifies the economic forces driving returns, not just the addresses of the companies.
Domicile Is an Incomplete Measure
The team directly addresses the objection that owning U.S. multinationals already provides sufficient global exposure. It does not. "Companies in the S&P 500® Index generate more than 40% of their revenues outside the US, giving US investors meaningful exposure to economic activity abroad. But that does not make US and international equity exposures interchangeable."
The revenue geography data is decisive here. "US revenues account for only 19% of revenues in the MSCI EAFE Index and 22% in the MSCI Emerging Markets Index, compared with 58% for the S&P 500® Index." These are different pools of economic activity, responding to different drivers, governed by different policy regimes and currencies.
Correlations: Not Fixed, and Recently Declining
The team is honest about the limits of diversification during stress. Correlations between U.S. and international markets can be high, particularly in broad sell-offs. But the case for international does not require low correlations in crisis; it requires that correlations are imperfect across the cycle. "More recently, correlations for both have declined, suggesting their return patterns have become somewhat less synchronized with the US market." The team is careful not to over-claim. Whether this trend persists is unknown. The broader lesson, as they state it, is that correlations themselves change as market and economic conditions evolve.
Five Key Takeaways for Advisors and Investors
1. Diversification does not require forecasting. The inability to predict when international markets will lead is not a reason to underweight them. It is the reason to hold them.
2. The S&P 500's sector concentration is larger than headline numbers suggest. Technology-related exposure approaches 47% once Alphabet and Amazon are properly accounted for. That concentration carries risk that international allocations can offset.
3. Owning U.S. multinationals is not a substitute for international equity exposure. The revenue geography of EAFE and emerging markets indices differs meaningfully from the S&P 500. Different economies, not different logos, are the source of diversification.
4. Sector composition differences are not static characteristics. The AI investment cycle demonstrates how those differences generate distinct return patterns in real time, including indirect benefits for industrial and semiconductor companies outside the U.S.
5. Correlation is a moving target. The recent decline in correlations between U.S. and international markets may or may not persist, but the historical pattern confirms that relying on a single market's performance path is a structural vulnerability, not a strategy.
The third part of the Artisan Partners series will address how the characteristics of international markets create opportunities for active management and security selection.
Footnote:
1 Portfolio Perspectives. "International Equities: More Than Geographic Diversification." Artisan Canvas, Artisan Partners, 17 Aug. 2026, https://www.artisancanvas.com/en/posts/international-equities--more-than-geographic-diversification.html.
