For years, U.S. mega-cap stocks have dominated returns in North American investor portfolios. Now, Franklin Templeton says there’s a case for more global diversification because of varying monetary policy cycles, sector compositions and structural growth forces across regions.
Comparing the S&P 500 Index with the iShares MSCI ACWI ex U.S. Index, the U.S. equity market underperformed international markets by 18 percentage points in 2025, said Dina Ting, senior vice-president and head of global index portfolio management at Franklin Templeton, at a Toronto event on March 4. A broadening effect is also taking shape in the U.S. market, with returns becoming less concentrated in Magnificent Seven stocks.
At the same time, there’s been an increasing dispersion of returns between the top and the bottom performing countries in the world. Ting said that highlights the benefits of disaggregating data by country to get a better idea of where investment opportunities may lie.
Historically, the difference between the best and worst performing markets has been in the 40–60 percentage point range. For 2025, that spread widened to 100 percentage points, driven by strong gains in South Korea (+96%) versus declines in Saudi Arabia (-7.5%), according to FTSE Russell RIC Capped indices, Ting noted.
“Things are not moving in lockstep anymore,” she said. And while the U.S. has earned a reputation for a safe bet, its year-over-year economic growth — in percentage terms — will always fall below that of smaller, outperforming economies.
“So, this highlights the opportunity set that exists with the dispersion of returns to create a more resilient portfolio.”
Some key factors to consider when weighing global investment opportunities today include where a country is in its monetary cycle, which will impact the cost of doing business there; its demographics, which can support or stifle economic growth; and its trade relationships, given the tariff wars that have become central to U.S. President Donald Trump’s administration.
“Given this backdrop, it is really important to think about targeted country tilts, beyond just broad market exposure, to be able to capture the next wave of leadership,” Ting said.
Global investment opportunities
There are a few countries where Franklin Templeton sees investment opportunities today: the U.K., Mexico, Brazil and China.
With the U.K., she said the country could play a leadership role in the European region as global geopolitical tensions persist. As well, the country’s equity market has significantly lower correlation with the U.S. equity market today (this correlation dropped 57% in the last three years, according to Franklin Templeton).
Mexico, meanwhile, has proved to be a significant manufacturing hub and key supplier due to its proximity to the U.S. And depending on the outcome of the Canada-U.S.-Mexico Agreement on trade review, the country’s export growth and trade stability could improve.
Brazil has already become a key global trade player with its soybean exports, supported by strong demand from China. Also, with its renewable energy investments, Ting said Brazil could become the future electrification hub that powers AI data centres in Latin America.
And while China has seen periods of underperformance and slower growth in recent years, Ting noted that the country has proved it can shift its exports beyond the U.S., posting a record $1.2-trillion trade surplus in 2025, a “challenging year” impacted by trade wars.
“We’ve seen some flows into some of these countries,” she said. Beyond China, there are Asian countries that could drive the next potential wave of leadership, Ting said: Taiwan, Japan, India and South Korea.
Taiwan is of particular interest due to its advanced semiconductor manufacturing capabilities, which Ting said are still superior to other countries that have spent billions trying to compete.
Japan, meanwhile, is still looking to improve its debt-to-GDP ratio. Having previously been the global leader in semiconductor manufacturing, they’re working hard to compete on this front globally, Ting said. “One thing that benefits them, compared to other countries, is the fact that they have the test equipment and the materials … needed for that, so they have a slightly better chance than the majority of other countries in terms of capturing the opportunity set.”
India has an advantage in terms of its young demographics and a relatively low tariff rate imposed on its goods by the U.S. The country’s also trying to shift from having a strong service industry to a strong manufacturing industry, “especially with the tension between the U.S. and China,” which presents an opportunity, she noted.
Lastly, South Korea also produces semiconductors and dominates the high-bandwidth memory market, with Samsung Electronics and SK Hynix Inc. controlling some 90% of global production. Both serve as primary suppliers for AI leaders like Nvidia Corporation. Further, the country established itself as a top 10 global defence exporter, “and with the geopolitics situation that we have right now, defence is a favourable sector,” Ting said. It’s seen success in other sectors too, including entertainment and food.
“There are opportunities that are quite specific for each of the countries, so that’s why targeted country tools may be helpful to your overall portfolio,” Ting said.