Core Insights - The ETF market experienced record net inflows of $166 billion in January 2026, surpassing the combined inflows of the previous three Januarys [1] - There is a significant shift from U.S. mega-cap stocks to international equities, with international equity ETFs attracting $68 billion in January, marking the first time they outpaced U.S. equity inflows since February 2023 [1] - The S&P 500 trades at approximately 22 times forward 2026 earnings, while international equities are closer to 13 times, indicating a potential for better returns from international markets [1] ETF Market Dynamics - International funds accounted for about one-third of net inflows despite representing only 17% of total ETF assets, with four of the top 10 most popular equity ETFs focusing on international markets [1] - Global ex-U.S. equity funds have seen their strongest inflow streak in four and a half years, driven by a rotation out of expensive U.S. tech stocks into more affordable international markets [1] Regional Performance - Emerging markets have shown strong performance, with three of the top 20 most popular ETFs being focused on these markets, including the iShares Core MSCI Emerging Markets ETF, which has attracted approximately $9 billion this year [1] - South Korean stocks have gained 28% year-to-date, with the iShares MSCI South Korea ETF seeing net inflows of around $1.7 billion [1] - European-focused ETFs have also seen strong demand, with inflows into both equity and bond funds surpassing those of U.S. counterparts [1] China and ADRs - Despite strong stock performance, China-focused ETFs have not seen significant inflows, although the KraneShares CSI China Internet ETF attracted over $2 billion last year [1] - The ADR market represents a $2 trillion opportunity, with U.S. institutions holding more than $800 billion, primarily in Chinese firms [1] - New ADR indexes have been developed to provide more precise access to international opportunities through U.S.-listed securities, allowing for better replication of returns from underlying indices [1]

Core Viewpoint - International equities are experiencing a resurgence after a decade of underperformance against the U.S. stock market, with experts suggesting that this opportunity may persist for the foreseeable future [1][2]. Group 1: Performance and Market Dynamics - International equities began to outperform U.S. equities in November 2024, achieving approximately 15% better returns since then, marking a significant inflection point despite a decade of lagging performance [4]. - Over the past ten years, global equities outside the U.S. underperformed domestic markets by about 60%, leading to a capital flow into U.S. equities, particularly in mega-cap technology stocks [3]. - The iShares MSCI Emerging Markets ETF (EEM) has $26.55 billion in assets and returned 42% over the past year, while the iShares MSCI ACWI ETF is up 20%, outperforming the S&P 500 by about 5% [5]. Group 2: Investor Behavior and Portfolio Allocation - U.S. investor exposure to international markets is estimated to be only 12-15%, significantly lower than the 30-40% representation of international equities in global market capitalization [3]. - Investors are encouraged to diversify their portfolios, with a suggested allocation of 70% to developed markets and 30% to emerging markets [5]. - The renewed interest in international markets is partly driven by a weakening U.S. dollar, which has improved returns for dollar-based investors holding foreign assets [6][7]. Group 3: Regional Insights and Sector Performance - Japan is highlighted as a key example of improving fundamentals, with corporate governance reforms boosting returns [7]. - Europe is benefiting from lower interest rates, fiscal spending, and regulatory changes, with sectors like banking, utilities, and industrials gaining momentum [8]. - Latin America, particularly Chile and Peru, is performing strongly due to rising commodity demand, with the iShares MSCI Brazil ETF (EWZ) up nearly 49% and the iShares MSCI Peru and Global Exposure ETF (EPU) up almost 118% over the past year [10][11]. Group 4: Broader Market Trends - The dynamics of global trade are shifting, with international policies from the Trump administration expected to serve as long-term tailwinds for international-themed trades [13]. - The technology sector is also being reassessed, with South Korea's market heavily weighted towards memory chip leaders, which have seen significant gains [14]. - The overall trend reflects a broader reallocation towards international equities after years of neglect, driven by valuation gaps and earnings growth [15].

Core Insights - 2025 was identified as a significant year for international investing, highlighting the importance of global market exposure in investment strategies [1] Group 1 - Many investment portfolios maintain international exposure as a core component, indicating a strategic focus on diversifying investments beyond domestic markets [1]

Core Insights - The depreciation of the Indian rupee to a record low of ₹90 against the dollar highlights the importance of hedging investment portfolios against currency risks, especially as Indians increasingly spend in foreign currencies for various needs [1][18] - The rupee has depreciated by 5% against the dollar recently, compared to its historical annual depreciation of 2.5-3% [1] Investment Options - Domestic mutual funds face constraints due to overseas investing limits, and international ETFs are trading at premiums on domestic exchanges, limiting global diversification options [2] - Feeder funds, which invest in international funds, are available for subscription, but they are actively managed and may not provide the same comfort as broad index investments [3][4] - Foreign broker platforms like Vested and INDMoney offer access to US equities and ETFs, allowing investors to buy fractional shares, thus making high-priced stocks more accessible [5][6][18] - Gift City funds, such as the DSP MF retail outbound fund, require a minimum investment of $5,000 and have unique tax implications, with taxes applied at the fund level rather than the investor level [9][10] Taxation and Regulatory Aspects - Investments made through Gift City do not require reporting under Schedule FA in income-tax returns, making them attractive for Indian investors [17][19] - Standard taxation applies to foreign investments outside of Gift City, with short-term gains taxed at the investor's slab rate and long-term gains at 12.5% [20] Strategic Recommendations - Financial advisors recommend a global allocation of 10-30% in investment portfolios to mitigate the impact of rupee depreciation, suggesting a gradual build-up to avoid market peaks [18][21] - Investors are advised to analyze and select the right fund manager for global funds launched in Gift City, while broad-based ETFs or index funds on foreign exchanges may offer a simpler investment route [22]

Investment Allocation - The report focuses on the percentage of a portfolio invested outside of the home country [1]