ETF Edge: A fundamental shift in international investing as geopolitical concerns swing markets

ETF Edge: US vs. International Investing - A Detailed Summary

Key Concepts:

• ETF (Exchange Traded Fund): A type of investment fund traded on stock exchanges, offering diversification and liquidity.
• Active vs. Passive ETF Management: Active ETFs are managed by a team aiming to outperform a benchmark, while passive ETFs track a specific index.
• Geopolitical Risk: Investment risk stemming from political instability or events in different countries.
• Dollar Debasement: A decline in the value of the US dollar relative to other currencies.
• Regime Change: A significant shift in the prevailing economic or investment environment.
• MSCI AQE: MSCI All Country World ex US Index – a benchmark for global equity performance excluding the US.
• MSCI XUS: MSCI Total International Stock Index.
• CapEx: Capital Expenditure - funds used by a company to acquire, upgrade, and maintain physical assets.

I. ETF Market Overview & Growth (John Mayer)

The ETF market experienced a record-breaking year in 2025, with over 1,000 new ETFs launched, 83% of which were actively managed. US ETF trading volume reached $58 trillion (1.25x the previous record). Net inflows into ETFs totaled $1.4 trillion, continuing a trend from record years 2023 and 2024. A recent “metal frenzy” is linked to concerns about dollar weakening (“dollar debasement”). Total ETF inflows in 2024 exceeded $216 billion, a >100% increase compared to 2023/2024 combined. JP Morgan’s Dr. David Kelly anticipates further potential for international market growth, driven by factors like AI, lower interest rates, and shareholder-friendly policies. While US ETFs continue to attract significant flows, diversification into international markets is increasing, particularly following strong international performance.

II. Drivers of Renewed Interest in International Markets (Tim Seymour & John Mayer)

Tim Seymour argues the current interest in international markets isn’t simply a “catch-up trade” after a decade of underperformance (international markets underperformed the US by almost 60% over 10 years, but have outperformed by ~16% in the last 14 months, and ~5.5% since Thanksgiving 2024). He emphasizes fundamental drivers. The dominance of the “Magnificent Seven” (US tech giants) created a market cap dynamic that stifled international investment. He posits that the growth of these companies is beginning to stall, creating space for international markets to shine.

John Mayer highlights a weakening dollar as a key factor, encouraging investors to diversify portfolios previously heavily weighted towards US assets. He also points to the benefits of exposure to European markets due to lower interest rates and fiscal stimulus.

III. Investor Positioning: Overweight/Underweight (Tim Seymour)

Seymour believes US investors are still underweight international equities. Global assets represent roughly 30-40% of global market capitalization, yet US investors hold only 12-15% of their portfolios in international assets. Different demographic groups have even lower exposure. This presents a long-term opportunity for reallocation. He frames this as a valuation story, noting international markets have historically been cheaper than US markets, and offer better dividend yields.

IV. Fundamental Shifts & Geopolitical Influences (Tim Seymour)

Seymour identifies several key trends:

• Deregulation in Europe: He argues deregulation in Europe is a more powerful trend than under the Trump administration, representing a significant shift from past bureaucratic constraints.
• Geopolitical Repositioning: He notes a trend of countries outside the US forging new trade deals (e.g., India & EU, Canada & China), indicating a broader shift in global economic relationships.
• Emerging Opportunities: He highlights opportunities in countries like Peru and Chile (driven by commodity demand – gold, copper), Brazil (improved political climate), and South Korea (leadership in high bandwidth memory).
• Strategic Defense Spending: Increased global defense spending is creating opportunities in related industries.

V. The Role of Active Management in International ETFs (John Mayer)

Active ETF flows in the US reached $470 billion in 2024, a 60% increase from 2023. Active ETFs now comprise 32% of all US ETF flows. 80% of new ETFs launched in 2024 were actively managed. JP Morgan is responding by launching actively managed international ETFs, such as Jive (international value) and Jade (emerging markets). Mayer emphasizes the importance of leveraging extensive research and technology (JP Morgan invests $1 billion annually in PMS research) to effectively analyze international markets and identify opportunities.

VI. Hotspots for International Investment in 2026 (Tim Seymour & John Mayer)

• Japan: Seymour highlights Japan’s focus on corporate governance, free cash flow payout, and efficiency improvements as a positive sign.
• Europe: Mayer points to lower interest rates and fiscal stimulus in Europe as tailwinds.
• Emerging Markets: Both experts see potential in emerging markets, particularly as the dollar weakens.
• Commodity-Rich Countries: Seymour specifically mentions Peru, Chile, and Brazil due to their commodity resources.
• Semiconductor Supply Chains: South Korea and Taiwan are highlighted due to their importance in the semiconductor industry.

VII. Key Takeaways & Future Outlook

The conversation suggests a significant shift is underway in international investing. This isn’t solely a “catch-up” trade, but is driven by fundamental changes in global economics, geopolitics, and corporate behavior. Active management is becoming increasingly important in navigating the complexities of international markets. Investors should consider increasing their allocation to international equities, given current valuations and potential for growth. Specific areas to watch include Europe, emerging markets, commodity-rich countries, and regions with strong semiconductor industries. The trend of deregulation and geopolitical realignment are also key factors to monitor.

Notable Quotes:

• Tim Seymour: “This is about fundamentals…the oxygen that was choked out of the market cap dynamic of the US Mag 7.”
• Tim Seymour: “I think investors want to stay attuned to some of those same themes that are continuing to evolve.”
• John Mayer: “Active management is only going be important and continue to grow in terms of assets and as ETF marketplace continues to evolve.”