Portfolio Construction Insights

A Strategic Approach to International Equity

January 15 2021
Executive Summary

In-depth research from T. Rowe Price’s Portfolio Construction Solutions team found that model portfolios used by financial professionals may be underweight international equities. Additionally, many financial professionals fail to broadly diversify their international equity allocations. Our research suggests that diversifying international equity allocations across regions, investment style, and market capitalization have historically improved returns, efficiency, and consistency. After an extended period of U.S. outperformance, now may be a good time to revisit the investment allocations in client portfolios and take a closer look at international stocks.

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Additional Disclosures

©2020 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

MSCI and its affiliates and third-party sources and providers (collectively, “MSCI”) make no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Important Information

Batting Average: The number of months where the portfolio outperformed the index, MSCI EAFE.

Sharpe Ratio: An investment measurement that is used to calculate the average return beyond the risk-free rate of volatility per unit.

Standard Deviation: Indicates the volatility of a portfolio’s total returns as measured against its mean performance.

Risks: Investing involves risk, including loss of principal. Diversification neither assures a profit nor eliminates the risk of experiencing investment losses. When valuations fall and market and economic conditions change, it is possible for both actively and passively managed investments to lose value.

International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates and differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets.

Stocks of mid-cap companies entail greater risk and are usually more volatile than the shares of larger-cap companies. Stocks of smaller-cap companies generally have been more volatile in price than larger-cap stocks. Value and growth investing styles may fall out of favor, which may result in periods of underperformance.

This material is being furnished for educational and general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial, and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc., and/or its affiliates receive revenue from T. Rowe Price investment products and services.

Consider the investment objectives, risks, and charges and expenses carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, call 1-877-804-2315 or visit troweprice.com. Read it carefully

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T. Rowe Price mutual funds are distributed by T. Rowe Price Investment Services, Inc. Investment advisory services are provided by T. Rowe Price Associates, Inc.

© 2021 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

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