Despite US Rebound, International Stock Funds Continue to Lead

Key Takeaways

• US stock funds, which have outperformed foreign stock funds for years, are lagging in 2025.
• Tariff uncertainty and the resulting economic concerns have hit the US harder than other markets.
• Firms with strong competitive advantages and low US market exposure are poised to shine, according to Mark Baribeau.

Even with a big rebound in US stocks over the past month, US stock funds are trailing well behind their international and global counterparts in 2025, in a reversal of a years-long trend.

Mark Baribeau, head of global equity at Jennison Associates and portfolio manager of the $6.3 billion PGIM Jennison Global Opportunities Fund PRJQX, says the #1 reason for the lag is the threat of tariffs. US large-blend funds—home to core investments such as S&P 500 funds and total market funds—are up 0.6% on average so far in 2025. Meanwhile, foreign large-blend funds, which include names like the $470 billion Vanguard Total International Stock Index Fund VTISX, are up 12.6% on average.

Foreign stock funds aren’t just outperforming in the large-cap blend category. Foreign large-cap growth funds gained 10.4% this year, compared with 0.8% for US large-growth funds, while foreign large-value funds returned 15.4%, compared with 1.2% for US large-value funds.

In fact, the underperformance of US stocks has left US stock funds entirely out of the 10 best-performing Morningstar fund categories in the year to date, and mostly absent from the top 20.

This recent underperformance marks a departure from the past five years. For example, over that period, foreign large-cap blend funds have returned just 11.6% on average, compared with 15.4% for US large-blend funds.

Tariffs Hammered US Stocks

US stocks didn’t start the year lagging, with US large-cap blend funds up through mid-February. The market was rocked by several rounds of tariffs imposed by the Trump administration, sending US stocks plummeting across fund categories.

“You’re basically putting a tax on US consumers and US businesses that import products for their production,” says Baribeau. “So that’s going to weigh on demand and increase costs, and that’s obviously going to be a drag on US profitability, either from the direct impact of tariffs or demand slowing because consumers are paying more.”

While the US market has rebounded as the president has walked back his hardline stance, many tariffs have been postponed and not repealed, so uncertainty still hangs over the market. In addition, the rebound has still not been enough for the US to keep up with international markets.

Baribeau says tariffs have made investors skittish, “particularly non-US investors, [who] are just kind of reallocating capital to their home markets.”

Where to Find Opportunities Abroad

Baribeau says he is looking for two main qualities in companies that can weather the current market turmoil well: low exposure to the US market and strong competitive advantages, which Morningstar analysts refer to as an economic moat.

One of PGIM Jennison Global Opportunities Fund’s largest holdings is Hermes International HESAY, a European luxury goods maker whose stock is up 12.1% in the year to date. The fund has a 5.2% weighting to the stock. Baribeau says that only a minority of the firm’s sales are to the United States, and its strong pricing power due to the strength of its brands will allow it to pass more of the tariffs on to consumers. Morningstar’s analysts classify the company as having a wide moat.

Another large holding is MercadoLibre MELI, a Latin American e-commerce and payments platform company which the fund has a 3.3% allocation to. The stock is up 51% in the year to date and has a wide moat. “They dominate all of Latin America with their payments platform,” says Baribeau. He adds that the firm’s concentration in the region and huge market share mean it’s comparatively unaffected by US tariffs and has substantial competitive advantages.

US Stocks’ Lag Likely to Be Temporary

“The reason [the US has] systematically outperformed is that we lead the world in innovation,” says Baribeau. He believes tariffs won’t affect that fundamental factor, and thus doesn’t expect they’ll jeopardize the US stock market’s performance over the long term.

Baribeau thinks some of the uncertainty around tariffs is being cleared up by earnings releases, which show their impact in concrete terms. He says the relatively decent reports are one reason for the rebound in US stocks.

The one thing Baribeau says could have a structural impact on US stock performance is the major cuts to basic research undertaken by the Trump administration. He says these cuts “would threaten the long-term economic security of the United States for sure.”