A Bigger Basket Isn't Always a More Diversified One

Most of us try to be mindful not to put all our eggs in one basket. But the now-familiar concern that most portfolios are quite concentrated in a relatively small group of large US tech companies means that investors may still be doing just that. Their baskets merely look bigger than they really are. What looks like diversification may in fact be exposure to a common set of companies, industries and economic drivers.

It's worth asking, then: What might happen if investors looked beyond a US-only allocation—not only through broad emerging market (EM) exposure, but also through targeted country allocations based on their investment convictions?

To explore that question, we compared an all-US equity portfolio with some that incorporated broad EM exposure as well as one allocation scenario combining US equities with select Asian markets.

Exhibit 1: Different Paths to Global Diversification

Performance as of July 31, 2026

Source: FactSet. Performance as of July 31, 2026. Indexes represented: S&P 500 Index, MSCI Emerging Index, MSCI Korea Index, MSCI Taiwan Index and MSCI Japan Index. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.

Scenarios for Global Diversification

• Broad EM exposure can provide a diversified allocation beyond US equities, while targeted country allocations allow investors to express specific market convictions.
• In this analysis, the select Asia allocation outperformed the all-Us portfolio over both the three- and five-year periods.
• Think strategically: Rather than chase recent winners, consider whether different countries can add distinct sources of long-term return.

The results highlight that there is more than one way to diversify globally. Broad EM exposure can provide a diversified allocation across developing economies, while targeted country exposure can allow investors to emphasize markets where they see particularly compelling structural opportunities.

In our analysis, a portfolio consisting of 70% US equities and 10% each in South Korea, Taiwan and Japan generated nearly a 25% three-year annualized return and about a 15% five-year annualized return, compared with just over 19% and nearly 13%, respectively, for the all-US portfolio.¹

The point isn’t that investors should favor individual countries over broad EMs—or that these markets will outperform in every period. Broad EM exposure can remain an efficient way to participate across a diverse set of developing economies. But investors with specific convictions may also consider country allocations as a complement, adding exposure to economic and earnings drivers that may be underrepresented in their existing portfolios.

“International” and “emerging markets” are useful portfolio categories, but broad labels can obscure just how different the countries within them really are.

Taiwan is central to the global semiconductor supply chain. India is increasingly powered by domestic consumption, demographics and infrastructure investment. Brazil brings greater sensitivity to commodities and agriculture. South Korea combines semiconductors and artificial intelligence (AI) infrastructure with autos, shipbuilding and advanced manufacturing. Japan offers yet another mix, including advanced manufacturing, industrial automation and ongoing corporate reform.

These differences help explain why markets don’t always move in lockstep with US equities—or with one another.

Exhibit 2: Global Markets’ Correlation With the S&P 500 Index—Last One Year 

As of June 30, 2026

Country correlations to S&P 500 Index, last one year (June 30, 2025 to June 30, 2026). Correlation is based on daily returns (USD). Indexes represented: FTSE Canada RIC Capped Index; FTSE Germany RIC Capped Index, FTSE Mexico RIC Capped Index etc.

Sources: FactSet, Dow Jones Indices, FTSE Russell Indices. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.

Trade policy provides a timely example. Trump’s announced US “Liberation Day” in April 2025 initially centered on tariffs as a broad global shock. Since the Supreme Court struck down those emergency tariffs, US trade actions have become increasingly differentiated by country and industry—underscoring why investors may want to look beneath broad regional labels and more closely at the distinct forces shaping individual markets.

After South Korea's powerful rally, a natural concern for investors watching from the sidelines is whether they've missed the opportunity. The better question may be: What could South Korea add to the portfolio I already own? Besides providing access to globally important semiconductor and AI supply chains, its equity markets feature exposure to advanced manufacturing, autos and shipbuilding. Corporate reforms aimed at improving governance and shareholder returns add another potential catalyst. These are different sources of earnings and economic exposure than many US-heavy portfolios provide.