Robo-Advisors and the Globalization of Passive Investing

The rise of robo-advisors has long been tied to the promise of democratizing access to low-cost, diversified investing. However, as the 2024–2025 period has demonstrated, the next frontier for automated wealth management lies in the strategic integration of international equity exposure. While early robo-advisors focused heavily on domestic markets—particularly U.S. large-cap benchmarks like the S&P 500—the shifting global economic landscape has forced a reevaluation of this approach. Today, robo-advisors are increasingly leveraging international equity allocations to mitigate risks, capitalize on macroeconomic tailwinds, and outperform domestic-focused alternatives.

The Case for International Exposure

The 2024–2025 period has been marked by a divergence in performance between U.S.-centric and international equity portfolios. While the S&P 500 surged 25% in 2024, driven by the Magnificent 7's dominance, robo-advisors with diversified international allocations have shown resilience in the face of U.S. market concentration risks. For instance, platforms like Betterment and Wealthfront have incorporated global ETFs into their portfolios, allowing investors to tap into growth in sectors such as Chinese technology and European defense—areas that have outperformed U.S. counterparts amid trade policy shifts and inflationary pressures.

BlackRock's 2025 Spring Investment Directions report underscores this trend, noting that international equities have historically offered a more balanced factor profile compared to U.S. markets. Developed international markets, in particular, have demonstrated higher exposure to value and income characteristics, with dividend yields and earnings growth outpacing U.S. benchmarks. This has made them attractive to robo-advisors seeking to enhance risk-adjusted returns in a high-volatility environment.

Why International ETFs Outperform

Several macroeconomic and geopolitical factors have tilted the scales in favor of international equity exposure:
1. U.S. Tariff Uncertainty: Proposed tariffs and trade tensions have created headwinds for U.S. equities, particularly in sectors reliant on global supply chains. In contrast, international markets—especially in Asia and Europe—have benefited from reduced capital outflows and stronger local demand.
2. AI and Global Diversification: While U.S. tech giants dominate AI capital expenditures, robo-advisors are now allocating to international ETFs that capture AI-driven growth in regions like Southeast Asia and Germany. This diversification reduces overexposure to the U.S. tech sector, which now accounts for over 30% of the S&P 500.
3. Currency and Inflation Dynamics: A weaker U.S. dollar has boosted the returns of international equities for U.S. investors, while inflation-linked strategies in emerging markets have provided a hedge against U.S. fiscal risks.

Strategic Reallocation by Robo-Advisors

Leading robo-advisors have adapted their strategies to reflect these dynamics. Schwab Intelligent Portfolios, for example, now includes international equities in 12 risk-tiered portfolios, while Fidelity Go has expanded its ETF offerings to include low-cost international exposure. Wealthfront's tax-loss harvesting tools have also been optimized to rebalance international positions, maximizing after-tax returns.

The shift is not without challenges. Emerging markets, while offering high growth potential, remain volatile due to geopolitical risks. Robo-advisors like Empower Personal Wealth have addressed this by using minimum volatility strategies in emerging markets, prioritizing stability over speculative gains.

Investment Implications

For investors, the takeaway is clear: international equity exposure is no longer a niche consideration but a core component of modern automated portfolios. Here's how to align with this trend:
1. Diversify Beyond the Magnificent 7: Allocate to international ETFs with exposure to non-U.S. tech and defense sectors.
2. Leverage Low-Volatility Strategies: Platforms offering minimum volatility ETFs in international markets can reduce downside risk.
3. Monitor Currency and Trade Policies: Use robo-advisors that dynamically adjust international allocations based on macroeconomic signals.

Conclusion

The globalization of passive investing is reshaping the robo-advisory landscape. By integrating international equity exposure, automated platforms are not only mitigating the risks of U.S. market concentration but also capturing growth in regions where macroeconomic fundamentals are stronger. As the 2024–2025 period has shown, investors who embrace this shift stand to benefit from more resilient, diversified portfolios. In an era of geopolitical uncertainty and AI-driven economic transformation, the future of automated wealth management lies in its ability to navigate—and profit from—the complexities of a globalized market.