In 1995, Vanguard opened the door for the average person to access international markets, including mutual funds for Emerging Markets, International Small Caps, and International Value.
This marked a turning point for retail investors.
Data Note: This analysis begins in 1995 to capture a full 30-year history. Please note that investable Index Funds for Global ex-US (1996), US Mid-Cap (1998), and US Small-Cap Value (1998) were not available at the start of this period. Performance for these specific asset classes during the “gap years” (1995–1997) is simulated using available active funds or academic data proxies to approximate market behavior.
Defining International Equities
- Emerging Markets: These are developing countries transitioning into developed market economies, such as, China, Taiwan, India, and Brazil.
- ETF: VWO
- International Small Caps: This group contains companies outside the US that have small market capitalizations.
- ETF: VSS
- International Value: These are companies outside the US with low valuations based on fundamentals.
- ETF: IVLU
Performance Review: US Dominance vs. International Lag
From 1995 to the present, every US equity style outperfomed international equities.
Even the worst performancing US asset style (Large Cap Value) outperformed the best performing international equity (European).
US Double Digit Returns
The United States saw growth across every asset style.
- Large Growth: 12.22% CAGR (Best Performer)
- US Market: 10.96% CAGR
- Large Cap Value: 9.82% CAGR (Worst)
International Markets Struggle to Keep Up
International markets significantly underperformed the US.
- European: 7.5% CAGR (Best)
- Pacific: 3.5% CAGR (Worst)
US Equity Styles that Outperformed the US Market (And by How Much?)
Here are US equity styles that outperformed the US Market from 1995 to present.
US Equity Style CAGR vs. US Market CAGR
- Large Cap Growth: Outperformed by 1.26%
- Mid Caps: Outperformed by .37%
- Micro Caps: Outperformed by .25%
- Large Caps: Outperformed by .12%
International Equity CAGR vs US Market CAGR
No international equity class outperformed the US Market from 1995 to present.
US & International Equities vs. Money Supply (M2)
A key measure of successful investing is whether returns are greater than the expansion
The money supply (M2) had a CAGR of 6.23% from 1995 – present.
US Equities Outperformed the Money Supply
All US equity styles outperformed the CAGR of the money supply.
Each style produced real productivity gains that outpaced dollar debasement.
International Equities: A Mixed Bad vs. the Money Supply
European, International Small Cap, and International Value had CAGR’s greater than the money supply.
Emerging Markets basically kept up.
Pacific, Global ex-US, and Developed International underperformed.
Is There a Reason to Invest in International Equities?
If the US outperformed international markets, what’s the point of investing in international markets at all?
There’s no way to predict the future.
Investing in international equities means that you’re not just betting on the US to continue to grow.