What’s Under the Surface Matters
Beyond the fact that unpredictability makes tactical moves extremely difficult, there are also big differences in the composition of global equity markets. The last decade was all about big tech: it accounted for more than a third of US equities’ outperformance between 2011 and 2021 (FIGURE 3); international equities had low tech exposure (FIGURE 4).

Especially today, as we face the highest inflation in many investors’ lifetimes, international indices tend to hold much more exposure to cyclical sectors (MSCI ACWI ex USA exposure: 59% vs. Russell 1000 Index: 40% as of 12/31/21)¹ that may be better suited to outpace inflation. The current inflationary environment could also potentially benefit areas such as materials and energy, sectors to which international equities are more exposed. And as central banks raise interest rates to rein in inflation, rising rates could also benefit financials—another sector to which international equities are more heavily exposed (FIGURE 4).

¹ Sources: Refinitiv Datastream and Schroders, 2/22.

MSCI ACWI ex USA is a broad-based, unmanaged, market-capitalization weighted, total-return index that measures the performance of both developed and emerging stock markets, excluding the US.

MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets. 

MSCI World ex USA Index is a free float-adjusted market capitalization index that captures large- and mid-cap representation across developed markets countries excluding the United States.

Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership.

Important Risks: Investing involves risk, including the possible loss of principal. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political, economic, and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets or if a fund focuses in a particular geographic region or country. Diversification and asset allocation do not ensure a profit or guarantee against loss.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

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