By Steve Bruce
International equities quietly delivered a standout year in 2025. As measured by the MSCI EAFE Index, international stocks returned 27.9%, their strongest annual gain since 2003, and outperformed the S&P 500 by 11.5%—the largest relative advantage since 1993. For investors evaluating international equities vs. U.S. stocks, the magnitude of this shift deserves attention.
International equities vs. U.S. stocks: a break from the recent past
While one year of performance does not establish a durable trend, the strength of international equities in 2025 stands out both historically and relative to U.S. markets. The degree of outperformance versus domestic equities was notable and marked a meaningful departure from the leadership U.S. stocks have enjoyed for much of the past decade.
Why rolling returns matter for relative performance
One year doesn’t make a trend, which is why rolling returns are a useful way to assess relative performance. Rolling returns smooth short-term noise and provide a more accurate reflection of the investor experience across a full market cycle. Looking at rolling 5-year relative performance, international equities still have work to do before a sustained period of outperformance can be declared—but the past year represents a constructive start.
Valuations, the U.S. dollar, and the case for diversification
Today, most investor portfolios remain heavily concentrated in U.S. large-cap equities. Relative valuations between U.S. and international markets remain attractive, and the growing risk of a secular bear market in the U.S. dollar adds another important dimension to the discussion. Historically, periods of dollar weakness have been supportive of international equity returns, particularly for U.S.-based investors.
International equities as a potential source of future returns
International equities are not simply a diversifier within a portfolio framework. Given current valuations and evolving macro conditions, they may also represent a meaningful source of returns in the years ahead. Expanding the investment opportunity set beyond U.S. borders deserves careful consideration as part of a disciplined, long-term investment strategy.
Steve Bruce, CMT is the Co-Founder and Chief Investment Officer of Bruce Wood Capital, where he focuses on systematic global macro strategies and long-horizon, data-driven research