RIAs Increasingly Look Beyond U.S. Markets as International Diversification Gains Importance
Registered investment advisors (RIAs) are increasingly looking beyond the United States as they seek to broaden client portfolios, reduce concentration risk and capture investment opportunities across international and emerging markets, according to a new survey commissioned by William Blair Investment Management.
The survey indicates that while U.S. equities remain a fundamental component of client portfolios, advisors are becoming more focused on the potential benefits of international diversification. A significant majority of respondents expect to increase allocations to international and emerging markets over the next year, with actively managed exchange-traded funds (ETFs) emerging as the preferred investment vehicle for accessing those opportunities.
The findings offer insight into how RIAs are thinking about portfolio construction at a time when investors are assessing valuations, economic growth, geopolitical risks and the concentration of U.S. equities within broader portfolios.
The survey included responses from advisors at U.S.-based RIA firms, with more than half of respondents working for organizations managing more than $1 billion in client assets.
Advisors See Growing Concentration in U.S. Equities
Although U.S. stocks continue to represent a core allocation for many investors, advisors surveyed by William Blair Investment Management believe portfolios may be too heavily concentrated in domestic equities.
Nearly three-quarters, or 73%, of respondents said investor portfolios are heavily concentrated in U.S. equities. At the same time, 90% said international diversification is more important today than it was one year ago.
The findings suggest that advisors are not necessarily viewing international investing as a replacement for U.S. exposure. Instead, many are considering overseas markets as a complementary allocation that could provide additional sources of growth and diversification.
That distinction is important for portfolio construction. U.S. equities have historically occupied a central position in many American investors’ portfolios, but a portfolio concentrated primarily in one country’s equity market can leave investors exposed to the economic, valuation and market-specific risks associated with that market.
International allocations can potentially broaden the range of companies, industries, currencies and economic environments represented in a portfolio.
Looking further ahead, 86% of advisors surveyed said that failing to increase international exposure over the next three to five years would represent a missed opportunity for investors.
The responses indicate that international diversification is becoming more than a tactical consideration for some RIAs. Instead, advisors increasingly see exposure outside the United States as an important part of long-term portfolio construction.
Active ETFs Gain Preference
One of the most notable findings from the survey is the preference for actively managed ETFs as a way to access international and emerging markets.
More than half of respondents, or 56%, said they expect to increase allocations to active ETFs focused on international and emerging markets over the next 12 months. That was a higher proportion than for any other investment vehicle included in the survey.
Other options considered included passive ETFs, mutual funds, model portfolios and individual securities.
The preference for active ETFs reflects the combination of two investment approaches. ETFs can provide features such as liquidity and transparency, while active management allows portfolio managers to make security-selection decisions rather than simply tracking an index.
For international markets, that distinction can become particularly relevant because countries and regions can differ significantly in their economic structures, corporate governance practices, industries, market compositions and regulatory environments.
“Advisors aren’t stepping away from the U.S., but they are casting a wider net,” said Jay Lisowski, Global Head of Product Strategy and Development at William Blair Investment Management.
Lisowski said the survey shows that advisors expecting to increase international and emerging-market allocations are particularly inclined to use actively managed ETFs to implement those decisions.
Why Active Management Matters in International Markets
The preference for active ETFs also reflects advisors’ interest in making more deliberate investment decisions across different geographic markets.
According to Lisowski, active management can be valuable in markets where security selection has the potential to influence investment outcomes. He also noted that international benchmarks can contain differences in country classifications and inclusion rules, potentially affecting how investors gain exposure to particular markets.
International indexes do not necessarily provide identical representations of global economies. Benchmark construction can influence which countries, companies and sectors receive exposure within a passive investment strategy.
Active management gives portfolio managers greater flexibility to select individual securities and adjust geographic or sector exposure based on their investment approach.
At the same time, the ETF structure can offer characteristics that many advisors already value, including liquidity, transparency and tax efficiency.
“Active management earns its place across geographies—wherever security selection can add value,” Lisowski said.
He added that investors should understand that benchmarks outside the United States can have blind spots, including differences in country classifications and inclusion rules.
The survey therefore points to an investment preference that combines the flexibility of active management with the structure of ETFs.
Asia-Pacific and Europe Lead Areas of Interest
The survey also provides insight into where RIAs see potential investment opportunities outside the United States.
When advisors were asked to identify up to three countries offering the strongest investment opportunities over the next three to five years, the United Kingdom ranked first, selected by 32% of respondents.
China followed at 28%, while Canada was selected by 26%. Japan and Germany each received 24% of responses, followed by India at 17%.
The results indicate that advisors are considering opportunities across a diverse group of developed and emerging markets rather than focusing exclusively on one geographic region.
When the individual country selections were grouped geographically, Asia-Pacific received the strongest overall interest, with 77% of respondents selecting countries from the region. Europe followed closely at 70%.
The Americas, excluding the United States, accounted for 40% of selections, while the Middle East and Africa received 26%.
These results suggest that advisors see international opportunities across multiple economic regions, with Asia-Pacific and Europe standing out as particularly important areas of interest.
China and India Remain Important Emerging-Market Considerations
The inclusion of China and India among the most frequently selected individual countries highlights the continued interest in major emerging economies.
China was selected by 28% of advisors, making it the second-most frequently identified country in the survey. India was selected by 17%.
Both markets represent large economies with significant populations and broad domestic industries, but they also have distinct economic, regulatory and geopolitical characteristics.
For advisors evaluating emerging markets, those differences can make security selection and market-specific research important components of portfolio construction.
The survey’s results suggest that RIAs are not simply seeking generic international exposure. Instead, many appear interested in identifying specific countries and regions where they believe long-term opportunities may exist.
U.K. and European Markets Attract Attention
The United Kingdom ranked first among individual countries, with 32% of respondents identifying it as one of the markets offering strong opportunities over the next three to five years.
Germany and Japan each received 24% of responses, further demonstrating interest in established international economies.
Europe’s overall selection rate of 70% also indicates that advisors continue to view the region as an important component of international diversification.
European markets provide exposure to companies and industries that may not be represented to the same extent within U.S. equity indexes. International allocations can therefore broaden the range of businesses and economic conditions represented in client portfolios.
For RIAs, this may create opportunities to complement domestic holdings with companies operating under different economic and market conditions.
The Case for Diversification Is Strengthening
The survey findings come as advisors increasingly consider whether traditional U.S.-heavy portfolios provide sufficient geographic diversification.
Olga Bitel, Chief Investment Strategist at William Blair Investment Management, has previously highlighted the changing global investment landscape.
“A long-term investor who looked away from the market might have concluded the U.S. was the only place to earn meaningful returns,” Bitel said. “While still attractive, the United States is no longer the only engine of economic growth and investment returns.”
The statement reflects a broader consideration for portfolio managers: global economic growth does not occur exclusively within the United States.
Different countries can experience different stages of economic development, consumer trends, demographic changes, industrial cycles and market valuations. International investing gives advisors the ability to consider those differences when constructing portfolios.
However, broader geographic exposure also introduces additional considerations, including currency movements, political developments, regulatory differences and market volatility.
Geopolitical Uncertainty Remains a Barrier
Despite the growing interest in international diversification, advisors continue to identify several challenges that can make overseas investing more difficult.
Geopolitical uncertainty was cited by 84% of respondents as a barrier to increasing international exposure. Client preference for U.S. investments was another major obstacle, cited by 74%.
These findings help explain why U.S.-centric portfolios remain prevalent despite growing advisor interest in international markets.
Clients may be more familiar with U.S. companies, U.S. financial markets and domestic investment products. Advisors may therefore need to explain the potential role of international investments within an overall portfolio rather than simply recommending a larger allocation to overseas markets.
Geopolitical developments can also make international markets appear more complex. Trade relationships, regulatory changes, political instability and international conflicts can affect individual countries and sectors in ways that are difficult to predict.
Advisors Seek Resilient Portfolios
The survey suggests that RIAs are attempting to balance these risks with the potential benefits of broader geographic exposure.
Ryan Airola, Head of North American Intermediary Distribution at William Blair Investment Management, said advisors are focused on building resilient portfolios.
“The advisors we work with want resilient portfolios,” Airola said. “In our view that means owning U.S. assets with conviction and complementing them with exposure to growth opportunities elsewhere.”
This approach does not represent a fundamental rejection of U.S. equities. Instead, it frames international investing as a potential complement to domestic allocations.
For advisors, the objective may be to maintain exposure to established U.S. companies while also gaining access to businesses and economic opportunities in other countries.
A Changing Role for International Investments
The survey results indicate that international diversification could become an increasingly important consideration for RIAs over the coming years.
With 90% of respondents saying international diversification is more important than it was a year ago and 86% viewing a failure to increase international exposure over the next three to five years as a missed opportunity, advisors appear to be reassessing the role of overseas markets in client portfolios.
The preference for active ETFs is particularly notable because it suggests that many advisors want international exposure without necessarily relying exclusively on traditional mutual funds or passive index products.
Active ETFs can give portfolio managers the flexibility to make security-selection decisions while retaining the characteristics associated with the ETF structure.
As RIAs evaluate international and emerging markets, the challenge will be balancing potential growth opportunities against geopolitical, currency, regulatory and market risks.
The survey nevertheless shows that the conversation around international investing is changing. Rather than viewing overseas exposure solely as an optional addition to a U.S.-focused portfolio, many advisors increasingly see global diversification as an important part of long-term portfolio construction.
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