This may come as a surprise because, when you look at global market performance, you’re mostly seeing the US, which makes up 74% of the MSCI World Index. What happens in the other 26% often goes unnoticed.

Incorrectly extrapolating US performance to the rest of the world means investors could miss out on opportunities. However, there are concrete actions investors can consider today to position for the future.

Turning the (Performance) Tables

While many investors are familiar with the narrative of US markets—where growth stocks have dominated and value has lagged—recent performance trends abroad tell a very different story. In the MSCI EAFE Index (where EAFE stands for Europe, Australasia, and the Far East), value has returned 20% in US dollar (USD) terms over the past 12 months (as of 8/31/25), outperforming the MSCI EAFE Index by 9% and growth stocks by 18%. Growth stocks lagged the Index by 9% (FIGURE 1).

This is the reverse of the US experience that we read about all the time. In the US, value has underperformed growth by 16% and the MSCI USA Index by 8% over the past year (as of 8/31/25) (FIGURE 2).

The scale of these recent performance swings in EAFE are so great that they now also feed into more medium-term numbers. Over three- and five-year horizons, value is ahead of growth and the market. European and UK Value stocks (MSCI EMU Value Index and MSCI UK Value Index) aren’t only ahead of their growth equivalents, they’re also ahead of the S&P 500 Index over the past five years (in both common currency and local currency terms).

I’m frequently asked, “What would it take for value stocks to outperform again?” My answer is, “It’s already happened outside of the US!”

Another segment that has struggled in the US but performed much better abroad are high-dividend stocks.

One area of commonality has been the recent terrible performance of quality stocks (those with more stable operating performance, better return on equity, lower leverage, etc.). These have outperformed over the long run in both the US and EAFE, but have had a disappointing 12 months. Quality has underperformed the market by 14% in EAFE and 8% in the US. In EAFE, this has been so punitive that quality is also now well behind on a three- and five-year basis.

Figure 1

In EAFE, Value and High Dividend Have Outperformed Growth and Quality
Performance vs. MSCI EAFE Index

As of 8/31/25. Past performance does not guarantee future results. Investors cannot directly invest in indices. Based on performance of the following indices: MSCI USA Growth, MSCI USA Quality, MSCI USA Value, and MSCI USA High Dividend relative to MSCI USA. Data Sources: LSEG Datastream, and MSCI.

Figure 2

In the US, Growth Has Been the Clear Top Dog
Performance vs. MSCI EAFE Index

As of 8/31/25. Past performance does not guarantee future results. Based on performance of the following indices: MSCI USA Growth, MSCI USA Quality, MSCI USA Value, and MSCI USA High Dividend relative to MSCI USA. Data Sources: LSEG Datastream, and MSCI.

In fact, in EAFE, the underperformance of quality over the past three years is now the worst in around three decades (FIGURE 3). Growth stocks have been struggling for some time.

Figure 3

In EAFE, Quality’s Performance Over the Past Three Years Is Near Its Worst for Three Decades; Growth Has Also Been in the Doldrums
Rolling 36-Month Relative Performance

MSCI EAFE Quality Index vs. MSCI EAFE Index

MSCI EAFE Growth Index vs. MSCI EAFE Index

As of 8/31/25. Past performance does not guarantee future results. Data Sources: LSEG Datastream, MSCI, and Schroders. See below for index definitions.

What Have Been the Performance Drivers?
In the US, growth companies have been rewarded for their better earnings growth (driven by technology companies), while outside the US, companies haven’t been rewarded. EAFE growth companies have underperformed despite delivering excellent earnings growth (FIGURE 4 shows this over the last 12 months but this has also been true over the last three years).

Rising valuations have been in the driver’s seat for value and high-dividend styles. They’ve done very well despite weak earnings. This is partly a reversal of the valuation extremes which existed previously and that still exist in the US.

Arguably, downgrades to the outlook for quality earnings over the past 12 months are consistent with poorer relative performance. An appeal of quality stocks is the robustness of their businesses, so any weakness may not sit well with markets.

EAFE growth companies have underperformed despite delivering excellent earnings growth.

Figure 4

A Tale of Two Markets With Different Performance Drivers

US: 12-Month Return Decomposition

EAFE: 12-Month Return Decomposition

As of 8/31/25. Past performance does not guarantee future results. Figures do not sum exactly as the total return is the compound return of the individual components. Analysis is based on change in 12-month forward earnings and change in 12-month forward price/earnings multiple. Based on performance of the following indices: MSCI USA, MSCI USA Value, MSCI USA Growth, MSCI USA Quality, and MSCI USA High Dividend, and EAFE equivalents. Data Sources: LSEG Datastream, MSCI, and Schroders.

The Lowest-Quality Stocks Have Been the Biggest Winners
Every now and then, markets perform in ways that ignore the fundamentals. Recently, it’s been the lowest-quality companies that have performed the best. If we deal with the real problem children—those that were losing money 12 months ago and are still losing money today—they’ve outperformed companies that were consistently profitable by more than 10% in the past 12 months (FIGURE 6). This has happened in both the US and EAFE. There are relatively few companies that fit this description in the large-cap space (2% of EAFE companies and 5% of US companies), but the scale of their outperformance is noteworthy.

Figure 6

Money-Losing Companies Have Outperformed Profitable Companies
12-Month Market-Cap Weighted Performance

Chart Data: 8/31/24-8/31/25. Past performance does not guarantee future results. Analysis of the subsequent 12-month performance of constituents of MSCI EAFE Index and MSCI USA Index beginning on 8/31/24. Constituents are filtered based on whether trailing earnings per share was positive or negative on 8/31/24. Portfolios are market-cap weighted based on weights on 8/31/24. Data Sources: LSEG Datastream, MSCI, and Schroders.

The perception of growth stocks being merely a play on AI and technology doesn’t translate that well outside the US.

A Word on Sector Allocations
When investors think of growth companies, they think of technology (IT). And this is true in the US, where over half the sector by market cap is IT. In addition, Amazon and Tesla are in consumer discretionary, and Alphabet is in communication services. IT + Amazon + Alphabet + Tesla = 70% (oddly, Meta is not a member of the MSCI USA Growth Index, but it’s the largest stock in the MSCI USA Value Index).

But, as with performance, it’s wrong to extrapolate the US to the rest of the world (FIGURE 7). IT comprises only 14% of growth in the EAFE, whose allocation is much more diverse. The biggest sector is Industrials at 27%; the healthcare weighting is also triple the US equivalent. The perception of growth stocks being merely a play on AI and technology simply doesn’t translate that well outside of the US. The same is true of quality, where IT has a much bigger weight in the US. Value is one area where there are greater similarities, with financials being the biggest sector both within and outside the US.

Figure 7

EAFE Growth Isn’t a Big Bet on Technology, Unlike the US
Sector weights

As of 8/31/25. Past performance does not guarantee future results. Based on sector weights of the following indices: MSCI USA Growth, MSCI USA Value, MSCI USA Quality, and MSCI USA High Dividend indices, and EAFE equivalents. Data Sources: LSEG Datastream, MSCI, and Schroders.

Valuation Extremes Between Styles Have Largely Unwound in EAFE
A few years ago, growth and quality stocks both traded on expensive valuations in the EAFE relative to history, while value and high-dividend stocks were cheap. However, the recent swings in performance mean that these divergences have all reduced substantially.

Quality trades at a slight discount to historical valuations (FIGURE 8). This is true for trailing and forward price/earnings (P/E) multiples. This is also the opposite of the situation in the US, where it trades at a significant premium.
Value and high-dividend stocks fell to very cheap levels but, because share price growth has significantly outperformed earnings growth, that’s no longer the case.
Growth still looks expensive vs. history in the EAFE, but the degree of expensiveness is nothing like in the US.
Growth has been becoming cheaper vs. value in the EAFE and is currently at the cheapest levels vs. value in around six years. Growth stocks are still relatively expensive vs. value on a longer-term historical basis.
Growth has also become cheaper vs. value in the US despite growth’s outperformance. This has happened because the earnings of US growth companies have been much stronger than the earnings of value companies.

Figure 8

Quality Trades at a Slight Discount to Historical Valuations for EAFE
Forward P/E Valuation vs. 10-Year Median

EAFE Forward P/E Multiples

EAFE Forward P/E Multiples: Growth/Value

As of 8/31/25. Past performance does not guarantee future results. Figures are shown on a rounded basis. Based on sector weights of the following indices: MSCI USA Growth, MSCI USA Value, MSCI USA Quality, and MSCI USA High Dividend indices, and EAFE equivalents. Data Sources: LSEG Datastream, MSCI, and Schroders.

What Does This Mean for Investors?
Outside the US, valuations have converged to more neutral levels across styles. Quality is no longer expensive, growth is no longer as expensive, and value and high-dividend stocks are no longer cheap. Everything is much more reasonable—both in isolation and relative to each other.

This is in stark contrast to the US where valuations are far more stretched in absolute terms and relative to each other, when compared with history.

How should investors respond? Valuations aren’t the only factor to consider, although they do matter a lot in the long run. Now that many of the recent extremes in the EAFE have unwound, financial professionals with a long-term outlook may want to consider a more balanced style allocation.

This doesn’t mean one particular style can’t go on a run, or another style can’t have a difficult performance stretch, but there’s less of a valuation case to expect that. And, in a world where uncertainties abound, diversifying by styles may increase your chance of earning resilient portfolio returns.

Also consider that many stocks, styles, and countries in the global stock market are performing well, and many are outperforming the US. But, if you’re passively tracking the global stock market, as increasing numbers of investors are, you hardly have any exposure to them in your portfolio.

At the end of August, the US was nearly three-quarters of the global stock market. The Magnificent 7 made up more than Japan, UK, China, Canada, France, Germany, and Switzerland combined. This means those seven stocks have a bigger weight than the next seven biggest countries combined. Global portfolios are loaded up on US mega-cap growth-style risk and hardly have any exposure to the wider opportunity set. The fact that many other parts of the market are performing differently—and better—than the US barely amounts to a rounding error in many investors’ returns. In our view, the case for unshackling yourself from the benchmark with a more active approach to investing has never been greater.

For more insights on international equities, please talk to your Hartford Funds representative.

Style Descriptions
Growth: Companies with stronger historical and forecast growth rates.
Value: Companies that are trading on cheap valuation multiples, such as price/book, and price to earnings.
Quality: Companies with more stable operating performance, better return on equity, and lower leverage.
High Dividend: Companies that pay higher and more stable or persistent dividend yields.