Global Equity ETFs: Navigating the Divergence Between International and All-World Exposure

After a decade of being left behind, international developed market stocks have decisively taken the lead over their U.S. counterparts. This reversal marks a fundamental rotation in global equity markets, driven by a powerful resurgence in value investing overseas. The shift is not a fleeting trend but a structural repositioning, with the MSCI EAFE Value Index delivering its highest year-to-date returns (33.8%) in over 25 years. This outperformance has been led by banks, whose operational improvements and a return-on-equity-led margin recovery have fueled a broad rerating.

The contrast with the U.S. market could not be starker. While international value has roared back, the U.S. has remained firmly in a growth regime, with its MSCI USA Growth Index outperforming the MSCI USA Index by 11% since November 2022. This divergence crystallized after the launch of generative AI in 2022, when global style leadership split sharply. The result has been a decade-long performance gap that profoundly shaped investor behavior. As Tim Seymour of Seymour Asset Management notes, a major world equities benchmark ETF, the iShares MSCI ACWI ETF (ACWI), underperformed by about 60% over the past ten years. That brutal stretch of underperformance choked off international investing, leading capital to flow overwhelmingly into U.S. mega-cap technology stocks and creating a deep structural underweight for many U.S. investors.

Now, that latent demand is being released. The recent gains are not merely chasing hot performance; they are a response to improving fundamentals and a recognition of the risks in concentrated U.S. exposure. The rotation toward value in developed ex-U.S. markets is a direct result of banks and other fundamentally strong, attractively valued companies benefiting from a more supportive macro environment. For institutional investors, this sets up a compelling diversification opportunity, as a 50/50 blend of the MSCI USA Growth and MSCI EAFE Value Indexes has offered resilience across different sectors and macroeconomic regimes. The decade of lagging returns has created a powerful tailwind for rebalancing, as investors finally look to correct a long-standing imbalance in their global portfolios.

Analyzing the Core Contenders: SPGM vs. IXUS

For investors seeking global equity exposure, the choice between a broad all-world fund and a pure international vehicle hinges on a trade-off between performance, cost, and portfolio construction. The State Street SPDR Portfolio MSCI Global Stock Market ETF (SPGM) and the iShares Core MSCI Total International Stock ETF (IXUS) represent two distinct approaches to this allocation.

SPGM offers a comprehensive, all-in-one solution. It blends U.S. and international stocks, giving investors a single fund for global diversification. This structure comes with a clear performance advantage. Over the past year, SPGM delivered a total return of 21.1%, outperforming IXUS's 18.79%. The reason is straightforward: SPGM's portfolio includes significant holdings of major U.S. technology companies like Nvidia, Apple, and Microsoft. This tech tilt has been a powerful driver of returns in recent years, directly attributing to SPGM's outperformance.

IXUS, by contrast, is a pure-play international fund. It focuses exclusively on non-U.S. companies, tracking over 4,100 stocks across developed and emerging markets. This concentrated mandate gives it a different risk and income profile. On the cost side, IXUS holds a clear edge with a lower expense ratio of 0.07% compared to SPGM's 0.09%. More notably, it offers a substantially higher income stream, with a dividend yield of 3.1% versus SPGM's 1.9%. This makes IXUS particularly appealing for cost-conscious or income-focused investors.

The performance gap, however, is not just about tech. It reflects a fundamental divergence in market leadership. While SPGM benefits from the U.S. growth rally, IXUS is more exposed to the international value rotation discussed earlier. This is evident in their sector weights: IXUS has a heavy allocation to financial services and industrials, while SPGM tilts toward technology. Their risk profiles also differ, with SPGM showing slightly higher volatility (beta of 0.93) compared to IXUS (beta of 0.80).

The bottom line is that these funds serve different strategic purposes. SPGM is a performance-oriented, all-world core for those who want global diversification without sacrificing U.S. market participation. IXUS is a specialized, lower-cost vehicle for investors who want to overweight international equities and capture their higher yield. The choice ultimately depends on whether an investor prioritizes recent returns and a tech-linked growth profile or long-term cost efficiency and international income.

Financial Impact and Risk Profile

The structural differences between SPGM and IXUS translate directly into tangible investment implications, particularly around volatility, liquidity, and how each fund will navigate future market rotations.

First, consider volatility. Beta measures a fund's price sensitivity to the broader U.S. market. SPGM's beta of 0.93 indicates it moves almost in lockstep with the S&P 500. IXUS, with a beta of 0.80, is less volatile relative to U.S. stocks. This lower beta reflects its pure international mandate, which insulates it from the full force of U.S. market swings. For investors seeking a smoother ride or looking to hedge U.S. concentration risk, IXUS's lower sensitivity is a material advantage.

Size is another critical factor. IXUS commands a massive $55.1 billion in assets, dwarfing SPGM's $1.5 billion. This scale creates significant liquidity benefits. IXUS trades with a tighter bid-ask spread and can absorb large institutional orders without moving the price, a crucial advantage for active traders and large investors. SPGM's smaller size, while not a liquidity crisis, means it may be less efficient for large trades and could face slightly higher transaction costs.

The most profound difference, however, lies in their sector and geographic DNA. SPGM's portfolio is a tech tilt, with its top holdings being Nvidia, Apple, and Microsoft. This gives it a powerful growth profile but also makes it highly sensitive to the fortunes of the U.S. technology sector. IXUS, by contrast, is a true global fund with a sector mix led by financial services (21%), industrials (15%), and basic materials (13%). Its top holdings span Taiwan Semiconductor, Samsung, and Asml, reflecting deep exposure to Asia and Europe. This broader international coverage means IXUS will respond differently to future style rotations. If the market shifts back toward value or cyclical sectors, IXUS is already positioned to benefit. If U.S. tech leads again, SPGM will likely outperform.

The bottom line is that these funds are not interchangeable. SPGM offers a performance-driven, tech-linked global core with moderate volatility. IXUS provides a lower-volatility, higher-income international vehicle with superior liquidity and a fundamentally different risk-return profile. For a portfolio, choosing between them is a strategic decision about which market regime and which risk factors an investor wants to own.

Valuation, Scenarios, and What to Watch

The forward path for global equity exposure hinges on a single, powerful question: will the recent rotation from U.S. growth to international value prove durable, or is it a fleeting reversal? The thesis is built on a widening valuation gap. International developed markets have seen a resurgence of value investing, driven by operational improvements in banks and a return-on-equity-led margin recovery. This has fueled the MSCI EAFE Value Index's highest year-to-date returns (33.8%) in over 25 years. In stark contrast, the U.S. remains firmly in a growth regime, with the MSCI USA Growth Index outperforming its domestic benchmark by 11% since late 2022. This divergence creates a structural opportunity, but its longevity depends on several key catalysts.

First, monitor central bank policies in developed ex-U.S. markets. The rotation has been supported by a more favorable macro environment, but any shift in monetary policy-particularly if major central banks like the European Central Bank or Bank of Japan pivot from easing to tightening-could pressure the cyclical and financial stocks that dominate international value. Second, commodity price movements are a critical lever for the emerging markets component of international funds. Since the MSCI EAFE Value Index is heavily weighted toward industrials and materials, a sustained rise in commodity prices could amplify its momentum, while a sharp decline would introduce headwinds. Finally, watch for any resurgence in U.S. market concentration. The powerful tech-driven rally that has powered funds like SPGM could reignite if generative AI narratives gain fresh traction, potentially drawing capital back to mega-cap U.S. stocks and pressuring international benchmarks.

Against this backdrop, the choice between SPGM and IXUS becomes a bet on which scenario unfolds. SPGM offers a compelling case for higher total returns and broader market exposure, capturing the tailwinds of U.S. tech leadership. Its 21.1% one-year return and tech-heavy portfolio position it to benefit if the U.S. growth story continues. However, this comes with a higher concentration risk and a lower yield. IXUS, by contrast, provides a lower-cost, higher-income alternative with a fundamentally different risk profile. Its 3.1% dividend yield and exposure to a global mix of financials and industrials offer a more defensive posture and superior liquidity, with its $55.1 billion in assets making it a more efficient vehicle for large-scale international allocation.

The bottom line is one of trade-offs. For investors who believe the international value rotation is a structural shift, IXUS delivers the pure, cost-efficient play with a higher income stream. For those who see the U.S. tech rally as still having room to run, SPGM's all-world core offers a performance-driven solution. The decade of underperformance has created a powerful tailwind for rebalancing, but the next phase will be determined by which global regime-U.S. growth or international value-can sustain its momentum.