International stocks came into 2026 with real momentum, after outpacing US stocks by some 15 percentage points in 2025.1
While the recent market pullback has interrupted that momentum to a degree, as of mid March both developed and emerging market stocks were still outperforming US stocks on a year-to-date basis.2
While past performance does not foretell the future, there are many reasons why investors might want to maintain an allocation to non-US stocks in 2026 in a diversified portfolio. Even after a year of outperformance, a large valuation gap still remains: Foreign large-cap stocks recently traded at about a 30% discount to US stocks on a forward price/earnings (PE) ratio comparison and a more than 50% discount on a price-to-book-value basis.3
Yasmin Landy, a Fidelity institutional portfolio manager focused on international stocks, notes that several of the forces that drove strong international performance last year still remain intact, and new drivers have been emerging. The US dollar, down by about 10% in 2025 relative to a basket of foreign developed-market currencies,4 remains under pressure as foreign businesses and investors diversify away from the US dollar in trade and investing decisions (when the dollar declines, foreign currency-denominated investments become more valuable to US investors). Currency movements are notoriously difficult to predict, particularly in the short term, but have historically often moved in long cycles, Landy says.
Europe—and Germany in particular—has been boosting spending on defense and infrastructure, providing fiscal stimulus that could help to raise the continent’s economic growth rate. European banks, a top-performing group last year, have continued to deliver generally good results thanks to favorable interest rate dynamics, loan growth in certain areas, and cost-control efforts. In Japan, after years of corporate restructuring, companies are becoming more profitable and friendly to shareholders. Additionally, Landy notes that supply-demand imbalances have created potentially compelling opportunities abroad in certain specific industries, including aerospace aftermarket parts, semiconductor manufacturing and equipment, and power generation and transmission.
Why own international stocks
In truth, the case for owning foreign shares is about much more than just performance chasing. “It’s always important to consider an investment in international stocks, due to the potential portfolio diversification benefits,” says Heather Knight, a national brokerage coach at Fidelity. Since economic and business cycles differ between countries, stocks from different nations and regions typically don’t move in synch. “Because US and international investments don’t move in lockstep, combining them in a diversified portfolio can help reduce that portfolio’s risk profile,” says Scott McAdam, an institutional portfolio manager with Strategic Advisers, LLC, the investment manager for many of Fidelity’s managed accounts.
Moreover, international markets represent a large, fruitful opportunity set, accounting for a large proportion of the world’s listed stocks and as much as 40% to 50% of global market capitalization.
How much should you hold in international stocks?
There’s no one-size-fits-all answer to the question of how much of one’s stock portfolio should be dedicated to foreign shares. Typically, a long-term allocation to international stocks is something that investors should establish when they come up with their asset allocation for a given goal, and should reevaluate periodically or if they have any changes to their goals, time horizon, risk tolerance, or risk capacity.
One common approach is to carve international stocks out of a portfolio’s total stock allocation. For example, McAdam says that Strategic Advisers often uses a guideline of a 70% US, 30% international allocation within the portion of a portfolio earmarked for stocks. Following that guideline, a portfolio with a 60% stock, 40% bond allocation would have about 18% of the total portfolio allocated to international stocks.
How to invest in international stocks
Fortunately, there are numerous ways to access overseas markets and stocks today. “It’s easier to invest in international stocks today than it was in the past, and Fidelity offers all options,” says Knight.
For investors, the main challenge is parsing the many options, which generally can be divided into 3 groups: investing in individual stocks, investing with exchange-traded funds (ETFs) or mutual funds, and investing with separately managed accounts (SMAs).
Read on for a brief review of some of the characteristics, advantages, and disadvantages of each option.
1. Individual stocks
There are 2 distinct types of securities that fall under the broader umbrella of individual foreign stocks: American Depository Receipts (ADRs), which represent shares of foreign companies that trade on US stock exchanges, and foreign-listed stocks (for example, shares of a Japanese company that trade on the Tokyo Stock Exchange).
An ADR is a security that trades in the US and in US dollars but represents claims to shares of a foreign stock. The ADR is created by a bank that purchases shares of the foreign stock and then issues receipts of that company for trading in the US. There are several hundred ADRs that trade on major US stock exchanges, plus several hundred more that trade in the over-the-counter (OTC) market. Fidelity customers can use the Fidelity Stock Screener to search for ADRs and sort them by size, earnings, industry, valuation, or other characteristics.
Pros
- Easy to buy.
- Access to many of the largest foreign companies.
- No need to handle currency conversion.
- Dividends are paid in US dollars.
- Many brokers, including Fidelity, charge no fees to trade ADRs.
- ADRs that trade on US exchanges are generally highly liquid.
- ADRs that trade on US exchanges generally must follow US reporting requirements—meaning investors can access English-language financial reports, and the underlying companies must meet certain US regulatory requirements around corporate governance and disclosures.
Cons
- Limited investment universe.
- Over-the-counter ADRs may not provide thorough financial reporting or follow rigorous US accounting and regulatory standards.
- May take significant work, research, and initial investment to build a sufficiently diversified portfolio.
- Although investments are in US dollars, there is still currency risk from the underlying foreign-listed holding.
- Dividends may have foreign taxes withheld, depending on the nature (or existence) of tax treaties between the US and the issuing company’s country. Investors should consult a tax professional for advice.
Some brokers, including Fidelity, may also offer access to foreign-listed stocks via access to foreign exchanges. For example, Fidelity’s international stock trading platform allows investors to invest in foreign-listed stocks from 25 countries and in 16 different currencies. Clients need to enroll online (there is no fee) to enable international stock and currency trading on foreign exchanges. At Fidelity, investors can choose to settle shares in either US dollars or local currencies.
Pros
- Access to a much broader universe of foreign stocks.
- More precise control over exactly what companies, industries, countries, and regions an investor has exposure to.
- Ability to trade in foreign currencies to help manage currency exposure.
- Some local foreign markets may be less efficient than US markets, potentially allowing investors to identify and benefit from mispriced securities.
Cons
- Brokerage and other fees may apply for stock trading on foreign markets.
- Currency conversion fees may apply.
- As with ADRs, tax treatment differs by country and may be complex—certain jurisdictions may levy stamp duties or transaction taxes.
- Foreign markets may be less liquid than US markets.
- Trading hours may differ from US trading hours.
- Foreign markets may have weaker regulatory controls, accounting requirements, or reporting requirements than US markets.
- Researching individual foreign-listed stocks may be more difficult than researching US stocks or US-listed ADRs.
2. Mutual funds and ETFs
Since investing overseas may feel, well, foreign to most American investors, international ETFs and mutual funds make sense for many for gaining stock exposure abroad. “It’s harder for the US-based investor to monitor some of the top-down issues in foreign countries,” says Landy. “That’s why professional management can be helpful for international stock investing.”
While investors don’t have precise control over the exact stocks they own in a mutual fund or ETF, they can choose funds that match the investment style or geographic exposure they seek. Fidelity investors can search among thousands of international-stock-focused funds and ETFs using the Fidelity Mutual Funds Research tool and Fidelity ETF screener.
Pros
- Convenience.
- Thousands of international funds and ETFs to choose from.
- Potential access to broad diversification for low minimum investment amounts.
- Professional managers may be well suited to keep their fingers on the pulse of local economies, currencies, opportunities, and market dislocations.
- Funds and active ETFs that are supported by teams of stock analysts may have the resources to conduct in-depth research on individual stocks, sectors, and markets.
- Ability to target specific regions, countries, sectors, or investment styles if desired.
Cons
- Subject to annual expense ratios.
- Less control over exact stocks held.
- Less control over timing of taxable events (funds and ETFs are generally required to distribute nearly all net investment income—dividends, short- and long-term gains—to shareholders each year).
- ETFs are subject to market volatility and the risks of their underlying securities, and can trade at premiums or discounts to their net asset values.
Both passively managed options (like index funds) and actively managed options are available. But Landy makes a case for active management abroad. “With active management overseas, you can add value by what you exclude,” she says. “Avoidance is important for some companies and regions around the world.”
3. Separately managed accounts (SMAs)
A third way to gain international exposure is with SMAs. Unlike mutual funds and ETFs, these are not pooled investments. Instead of owning shares of a fund or ETF in their account, an investor owns the underlying individual international stocks, but the portfolio is professionally managed. (Learn more about SMAs.)
An SMA could be a particularly compelling structure for international stock investing due to the key blend of features it can offer: access to professional active management, plus access to tax-sensitive strategies.
Pros
- Convenience.
- Potential access to broad diversification.
- Professional management—potentially using either an active or passive approach.
- Potential for customization of portfolio.
- Access to tax-smart investing strategies, such as tax-loss harvesting and deferred realization of capital gains. (Note: Tax-smart investing strategies may only provide a benefit when held in a taxable account, such as a brokerage account).
- Full transparency: Account holders can see exactly what securities they hold (and any transactions) daily.
Cons
- Potentially more limited investment universe than international mutual funds or ETFs (many international stock SMAs invest primarily or exclusively in ADRs, which are explained further in section 1 above).
- Advisory fees, management expenses, and transaction costs may be higher than for some ETFs and funds.
- Many types of SMAs may require high minimum initial investment.
- No tax benefit if held in a tax-advantaged account such as an IRA.
Fidelity offers both indexed and actively managed international-stock SMA strategies. Investors can learn more about FidFolios®, digital SMAs that require a minimum initial investment of $5,000, or Fidelity’s traditional SMAs, which have investment minimums ranging from $100,000–$350,000.
Take the next step
If you’re not sure how much you should be holding in international stocks, go back to basics by revisiting your asset allocation. If you’re ready to dive into investment options, you can research mutual funds, ETFs, and stocks that may be a fit for your goals and needs.
Or, if you could use some help in navigating your investing journey, learn more about how we can work together.