Uncover a world of opportunities beyond the US

For the longest time, investing in global superpower, the US, felt intuitive. Especially in the past few years, Magnificent 7 companies and other large tech companies have earned a near-perpetual spot in headlines for breakthroughs in valuations and the AI race.

Despite chart-topping valuations and headlines, plot holes have started to mar the US exceptionalism narrative since the beginning of President Trump’s second term, with investor confidence in US assets being repeatedly tested. Tariff tug-of-wars, mounting US debt, hints of de-dollarisation, and the US-Israel war against Iran raised the question as to whether US equity valuations are justified.  

To be clear, the US remains the world's largest and most liquid equity market. However, while the S&P 500 delivered a solid return of 17.9% for the year (in US dollar terms)*, capping three consecutive years of growth, other major indices beyond the region far exceeded that. 

What 2025 demonstrated is that the global opportunity set is wider than the US alone, and how a geographically diversified portfolio is better placed to capture it.

Markets have given plenty of reminders to diversify

While the US market's third consecutive year of double-digit gains was impressive, the spotlight was elsewhere in the world. 

2025 was the first in eight years that emerging markets (EM) meaningfully outperformed the US equities. In US dollar terms, the EM index returned 29.8%, and the developed equity market ex-US returned 32.4%*. The S&P 500’s 17.9% returns paled in comparison.

For Hong Kong-based investors, the global investment picture has shifted notably, with the Hang Seng Index (HSI) recently demonstrating stronger momentum of late. Whilst these local equities currently present compelling positive opportunities, investing globally remains paramount. Broad diversification ensures you capture worldwide growth and helps cushion against single-market volatility.

The breadth of outperformance was equally striking - it was not driven by one market or sector. The broadening out of leadership by region and by sector continued well into early 2026, with Korea, Brazil, Chile, and Taiwan leading in January, and Japan taking centre stage in February following a landmark electoral result that increased investor trust in potential for growth resumption.

This is not without historical precedent. After the tech bubble burst in 2000, emerging markets outperformed US markets for seven consecutive years between 2001 and 2007*. 

Market leadership rotates all the time, and the reminders have always been there, but recency bias makes it easy to forget.

Why investors should diversify their portfolios

Lessons about diversification don’t have to come from the markets’ rude jolts. Investors can simply look at  long-term historical evidence. Beneath are three timeless lessons on diversification to explain why a broader geographic and sector exposure needs to be part of every investor’s toolkit.‍

Diversification is about risk optimisation

Assuming the same risk profiles, a well-diversified portfolio spreading exposure across geographies, sectors, and asset classes that do not move in lockstep typically allows them to harness higher returns compared to a concentrated position.

The evidence bears this out: Since 1999, the classic 60/40 portfolio, with an allocation to 60% global equities and 40% global fixed income, has averaged annual returns of 7.06%, and was up 437.72%. In seven out of eight years that equities had negative returns, fixed income returns were positive**. 

**Based on Endowus Research, Bloomberg. 60/40 portfolio returns are based on 60% Morningstar Global Markets NR USD, and 40% Bloomberg Global Aggregate Total Return Index Hedged USD, from 1999 to 2025. These figures are for illustrative purposes only and are not indicative of the actual return likely to be achieved by any Endowus product or portfolio.".

Diversification is about minimising regrets 

Market leadership rotates and is rarely predictable, yet many still make the mistake of attempting to identify patterns to make bets on market’s next winners. Retail investors are especially vulnerable to the belief that they can beat the market. 

In practice, even professionals find it difficult to beat the markets. According to Morningstar’s US Active/Passive Barometer, only 21% of actively managed funds survived and beat their average indexed peer over the decade through June 2025.

A globally and sectorally diversified portfolio keeps investors positioned to benefit from long-term growth in equity prices, without falling prey to the market timing illusion. A portfolio concentrated solely in US stocks may deliver great returns in a given period, but decisively underperform in the next one. Diversification removes the regrets of should-haves and could-haves from the equation.

Diversification is about resilience

Markets tend to correct after periods of overvaluation and hype, and generally follow an upward trajectory over several decades. What separates investors who build wealth steadily is not successful market timing—which is a fool’s errand—but the emotional discipline to stay invested through periods of elevated volatility.

As humans, investors tend to look at others around them to decide the next best course of action, and this is known as “herd mentality”. It is not fundamentally wrong, but may cause an investor to defy logic and act against their best interests. This phenomenon is especially pronounced in situations of high uncertainty and fear, such as an abrupt and unexpected market sell-off. 

A well-diversified portfolio should be both a financial and psychological cushion that allows one to stay invested despite market volatility. The composure to hold their ground is what allows successful investors to benefit from its long-term upward trajectory.

How to build a diversified portfolio with ex-US funds

The core-satellite strategy that underpins Endowus’ suite of solutions offers a practical framework for implementing diversification in one’s portfolio.

A core portfolio should always anchor an investor's strategic allocation. It is ideally suited for long-term, stable market returns and usually tracks a passive index, meaning its geographical and sectoral allocations mirror the index's as closely as possible.

Satellite positions are more concentrated in specific market segments. They are for investors who want to go beyond broad market exposure and capitalise on specific opportunities as they arise. They are also called tactical allocations.

For instance, an investor with a strong conviction that markets outside of the US will outperform can introduce some degree of overweight to regions like emerging markets or Asia, while keeping the overall portfolio anchored to one’s risk tolerance and goals.

For those looking to express a conviction in ex-US markets, either via a single fund or a multi-fund portfolio, Endowus Fund Smart provides access to a curated selection of funds from global managers with proven expertise in identifying opportunities across emerging and developed markets outside the US. These funds have been carefully selected after rigorous screening and due diligence by the Investment Office. For those who are looking to gain exposure to the growth of China, the Endowus Satellite Portfolio - China Equities model portfolio provides diversified exposure to China’s structural growth opportunities across strategies and managers. 

Below are some examples of our funds under Fund Smart. 

Note: The funds listed below are for illustrative purposes only and do not constitute investment recommendations or an exhaustive list of available options. To explore the full range of funds available, please visit Endowus Fund Smart.

Fund Smart highlight: Asia funds

Fund Smart highlight: Europe funds

Fund Smart highlight: Emerging markets funds

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