Global Markets: Funds for International Exposure

As 2025 closes on a high note and 2026 optimism takes hold, investors are increasingly looking beyond domestic borders. Demand for diversified international funds is surging, fueled by strong returns, renewed regional focus and shifting policy landscapes. By exploring hedge funds, ETFs, emerging-market bonds and non-US equities, market participants can build portfolios designed to withstand volatility and capture long-term growth.

With the United States dominating headlines, seasoned allocators and retail investors alike are reminded of the vital source of stable, diversifying returns available overseas. From Europe’s fiscal resurgence to Asia’s reopening and under-owned emerging markets, the global landscape offers compelling opportunities.

Hedge Funds Leading the Charge

Hedge funds delivered exceptional performance in 2025, generating an average of 641 basis points (10.53%) over cash. Over the past five years, these vehicles have outpaced cash by 466 basis points annually (7.96%). This consistency has driven net inflows of $25 billion in 2025, as 55% of sophisticated allocators increased their exposure. Looking ahead, survey data indicates $24 billion of net inflows expected in 2026 among allocators managing $1.1 trillion in AUM.

Private banks lead the way: 94% of surveyed institutions anticipate allocating an additional $7.6 billion next year. Overall, 64% plan net increases, confirming hedge funds as a tactical trading strategies with low correlation complement to traditional holdings.

• Europe: 34% plan new allocations in 2026 (equity long/short, event-driven, credit).
• Asia-Pacific: 30% intend to add positions (multi-strategy, equity long/short).
• China: Interest rising to 14% in 2026, rebounding from a 42% cut in 2023.

Managers are also expanding separately managed accounts, which rose 61% to $42 billion in 2025. Two-thirds of allocators now eye portable alpha and active extension products, underscoring the search for yield and diversification.

ETFs for Dividend and Value Investors

Exchange-traded funds have enjoyed surging popularity following global index rallies exceeding 20% in 2025. In particular, income-focused, large-value international ETFs are capturing attention as yield spreads compress at home.

The Schwab International Dividend Equity ETF (SCHY) tracks the Dow Jones International Dividend 100 Index, blending high-quality stocks from more than 20 countries. Key features include:

• High-quality stocks from over twenty countries with sector and holding caps to manage concentration.
• Income-oriented focus, delivering yields above 3% for yield seekers.
• Low turnover and a High Process Pillar rating from Morningstar, signaling robust methodology.

For investors seeking stable dividends with attractive valuations and policy shifts on their side, SCHY and similar vehicles offer a transparent, cost-effective route to global income.

Emerging Markets Bonds: A Hidden Gem

Emerging-market sovereign debt remains under-owned, with gross supply at $251 billion in 2025 and net net issuance of $92 billion. Bond fund inflows have already reached $24 billion year-to-date, excluding crossover funds. Looking forward, dedicated EM bond inflows are forecast between $40 billion to $50 billion in 2026, even as net sovereign supply moderates to $27 billion.

• Credit repricing: Expected upgrades for Serbia and Morocco to investment grade.
• Opportunity in reform names: Argentina, Pakistan and Ghana could emerge from CCC.
• Negative corporate net financing for 2026 suggests disciplined issuance.

These bonds deliver structurally under-owned international exposure with positive technicals, offering enhanced yields relative to developed markets and the potential for capital gains as credit profiles improve.

Equities Across Borders

Non-US equities posted roughly 30% returns in 2025, breaking more than a decade of relative underperformance. Despite this rally, forward P/E multiples remain about 35% lower than those in the US, highlighting a mid-decade shift in global valuations that many believe still undervalues international companies.

Key drivers for 2026 include strategic diversification by sovereign wealth funds, central bank purchases of foreign assets, and a multipolar growth narrative. Governments are also ramping spending: Germany’s $1.3 trillion fiscal package underlines a shift toward infrastructure and green energy investment.

Model allocations emphasize:

• Overweight global duration (+0.70 years) via French, Spanish and Canadian bonds.
• Underweight US, German and Japanese sovereigns to capture yield curves.
• Exposure to ex-US equities through broad market indexes and strategic sector tilts.

FDI and the Macro Backdrop

Foreign direct investment surged 14% in 2025 to $1.6 trillion, led by financial services and centers like London and New York. Developed markets saw a 43% increase, while developing economies fell 2%, reflecting capital’s flight toward stability and scale.

Major trends include slower M&A activity, muted greenfield projects and a pivot away from renewables-focused infrastructure. Looking ahead to 2026, FDI is poised for modest gains if credit conditions ease and M&A resumes—but geopolitical tensions remain a wildcard.

This macro backdrop reinforces the case for diversified global allocations. By balancing private capital flows with public market strategies, investors can navigate uneven growth patterns and capture the benefits of a multipolar world.

Navigating Risks and Divergences

Despite rising correlations to global benchmarks, hedge funds and tactical bond strategies continue to provide low-beta cushioning against shocks. Currency risks loom large: a strong dollar driven by rate differentials contrasts with euro optimism already priced in.

Monetary policy divergence further complicates the picture. The Fed is expected to implement one more cut in Q1 2026 before holding rates steady. In contrast, several non-US central banks remain hawkish, keeping short-term rates elevated. Investors must therefore calibrate duration, credit exposure and currency hedges carefully.

Overall sentiment tilts positive for international funds—particularly in Europe, Asia and emerging markets—but fragmentation and geopolitical fragmentation underscore the need for active management and rigorous risk controls.

By integrating hedge funds for diversification, ETFs for income, EM bonds for yield and ex-US equities for growth, investors can craft portfolios that harness global momentum. In an era of evolving leadership and uneven recoveries, well-diversified strategies not only smooth returns but also position capital to benefit from tomorrow’s growth stories.

Seize the opportunity now: diversify broadly, stay disciplined and remain agile. As the world economy shifts, those who balance vision with pragmatism will lead the way toward stronger, more resilient portfolios.