The next engine of global growth may lie beyond the US
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As global leadership broadens, Franklin Templeton says stock selection may matter more than ever
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Global equity portfolios did not drift toward the United States over the past decade. They concentrated there, deliberately and repeatedly, because it kept working.
Strong growth, dominant technology franchises, and consistent earnings delivery made the case easy to defend. Over time, what began as an overweight position hardened into a default. For many investors, global diversification became more theoretical than real.
That backdrop is starting to shift. Growth is broadening, valuations outside the US remain less stretched, and leadership is no longer confined to a narrow set of companies or sectors.
The question now is less about whether the US remains important and more about what has been missed elsewhere, and how portfolios adjust if leadership becomes more diffuse.
Ian Riach of Franklin Templeton Investment Solutions argues that the next phase of returns may require investors to look beyond the market that has defined the last one.
Franklin Resources, Inc. (NYSE:BEN) is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. In Canada, the company’s subsidiary is Franklin Templeton Investments Corp., which operates as Franklin Templeton Canada. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management, and technology solutions. Through its specialist investment managers, the company offers specialization on a global scale, bringing extensive capabilities in equity, fixed income, alternatives, and multi-asset solutions. With more than 1,500 investment professionals, and offices in major financial markets around the world, the California-based company has over 75 years of investment experience and US$1.7 trillion (over CAN$2.4 trillion) in assets under management as of March 31, 2026.
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“If you step back and look at where global growth is coming from, a significant portion of it is increasingly being generated outside the developed world. But many portfolios still remain heavily concentrated in the US, which creates a disconnect between where growth is occurring and where capital is allocated”
Ian Riach,
Franklin Templeton
Published April 29, 2026
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“One of the differences internationally is that leadership tends to be a little broader. You’re not relying on a handful of companies to drive the majority of returns”
Ian Riach,
Franklin Templeton
“If you step back and look at where global growth is coming from, a significant portion of it is increasingly being generated outside the developed world,” Riach says. “But many portfolios still remain heavily concentrated in the US, which creates a disconnect between where growth is occurring and where capital is allocated.”
For investors looking to address that imbalance, international equities are once again becoming a more active conversation in portfolio construction.
Why investors are starting to look beyond the US What began as a tactical tilt toward US equities gradually became a structural position in many global portfolios.
“A lot of investors had been overweight US equities for such a long time, and with good reason,” says Riach. “But valuations started to reach pretty high levels. That made the market more vulnerable to growth disappointments, or even just a slowdown from the very robust pace we’d seen.”
As valuations rose, some investors began reducing exposure and reallocating toward markets that appeared comparatively inexpensive.
Policy uncertainty in Washington added to that shift. Investors who were already reassessing valuation risks reduced US exposure further, contributing to a gradual movement of capital toward other regions.
Canada was one beneficiary. The resolution of election uncertainty helped stabilize sentiment, while strength in the commodity complex supported parts of the market tied to natural resources. Financials also played a meaningful role in Canada’s performance. Banks and other financial institutions delivered strong returns, helping support the overall index.
Europe also began attracting renewed attention. Governments across the region signalled a stronger push toward economic independence, particularly in areas such as defence, infrastructure, and healthcare productivity. These commitments were backed by substantial fiscal stimulus programs announced by the European Union and Germany.
As a result, capital flows began to move more noticeably beyond the United States.
International markets offer opportunity but not simplicity Looking beyond the United States does not mean stepping into a simpler investment backdrop.
International markets offer a broader set of opportunities, but they also come with a more complex mix of economic, political, and regional influences.
“Geopolitics is always a factor investors have to keep in mind when allocating internationally,” Riach says. “These markets can offer compelling growth opportunities, but they can also be more sensitive to changes in the global environment.”
Ongoing geopolitical tensions and regional conflicts have introduced an additional layer of uncertainty for investors considering international allocations.
In emerging markets in particular, political and geopolitical risks can reshape capital flows quickly, even as long-term growth prospects remain compelling. A prolonged conflict could expose the risks of what has become an increasingly crowded emerging markets trade.
Even with those risks, many investors continue to see a role for emerging markets within diversified portfolios.
“Emerging markets are a diverse group of economies, but many of them are benefiting from long-term structural trends such as urbanization, rising incomes, and increasing domestic consumption,” Riach says.
Developed international markets present a different dynamic. In Europe, policy support and fiscal spending may take time to filter through into economic activity and corporate earnings, but they remain an important part of the medium-term outlook.
Riach suggests that the shift in capital toward international markets may continue, but at a more measured pace.
“The large shift driven by sentiment has largely taken place,” he says. “From here it may continue, but probably more at the margin.”
Market leadership is starting to broaden Market performance has remained concentrated in parts of North America.
In Canada, the S&P/TSX Composite Index was heavily influenced by the materials sector during 2025, particularly precious metal miners. Record gold and silver prices drove strong gains among companies tied to those commodities. Financials also contributed meaningfully to overall market returns.
In the United States, the “Magnificent Seven” stocks continued to outperform the broader market, lifting index performance even as many other sectors delivered more modest results.
International markets have shown a different pattern.
Returns have been spread across a wider range of sectors, including financials, utilities, communication services, and industrial companies.
“One of the differences internationally is that leadership tends to be a little broader,” Riach says. “You’re not relying on a handful of companies to drive the majority of returns.”
Part of that difference reflects how companies are valued in different regions. European equities tend to trade more heavily on traditional valuation measures than on growth expectations alone. Recent market movements have also included a rotation from growth toward value.
As leadership becomes less concentrated and valuation frameworks differ across regions, identifying individual companies becomes more important.
A more selective approach to a broader market A broader and more differentiated opportunity set places greater emphasis on stock selection.
The Franklin Core Equity strategies are built around that idea, combining systematic analysis with insights from fundamental portfolio managers.
When discussing Franklin Core Equity Funds, Riach points to familiar drivers such as quality and value, alongside less traditional signals derived from market behaviour and data analysis.
A key component is the conviction factor, which translates the
highest-conviction insights of Franklin Templeton’s fundamental managers into consistent stock-level signals.
“It captures the conviction of the underlying managers,” Riach says. “If they have a high weighting in a particular stock, it reflects their belief that it can drive excess returns.”
Rather than relying solely on portfolio weights, the approach focuses on how managers allocate risk across holdings, converting those decisions into signals that can be applied consistently within a broader portfolio framework.
The Franklin International Core Equity Fund is designed for that environment, applying this approach across developed markets outside North America.
“If leadership continues to broaden, then stock selection becomes increasingly important,” Riach says. “That’s where active management can add value.”
When broader markets demand more selective investing The rotation away from the United States in 2025 did not mark a wholesale reversal of US equity leadership. But it did challenge the assumption that global returns would remain concentrated in a single market.
“If leadership continues to broaden, then stock selection becomes increasingly important,” Riach says. “That’s where active management can add value.”
Much of the repositioning that drove international markets higher has already taken place. From here, the opportunity may lie less in a sweeping regional rotation and more in identifying companies that can outperform as global leadership gradually widens.
This article was written before the US and Israel’s attack on Iran. Forecasting geopolitics is difficult, particularly in scenarios as fluid and fast-moving as the current Middle East conflict. We will be monitoring important energy, military, and diplomacy signposts. A prolonged surge in energy prices would likely raise inflation expectations, erode private sector confidence, and slow economic growth − posing a risk to our current asset allocation. If the duration of the conflict is not prolonged, we believe solid economic and corporate fundamentals should reflect in asset prices. We are closely monitoring developments and will remain dynamic in adjusting our positioning as conditions evolve.
25
20
15
10
5
0
2021
2022
International equities remain at discount to US stocks
2023
2024
2025
2026
Source: Bloomberg; 12M Blended Forward P/E Ratio as of 31.03.2026
MSCI USA price return USD Index (USD)
MSCI ACWI excluding United States Index (USD)
7.54%
40.74%
33.70%
6.96%
7.45%
3.60%
Contributions to global GDP PPP growth 5Y IMF WEO outlook October 2025
Developed markets
Asia emerging market and developing economies
Europe emerging market and developing economies
Latin America & the Carribean
Middle East & Central Asia
Sub-Saharan Africa
Souce: Macrobond; as of 31.03.2026
Important legal information
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager, and the comments, opinions, and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, or market.
Commissions, trailing commissions, management fees, brokerage fees, and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated. Franklin Templeton Canada is a business name used by Franklin Templeton Investments Corp.
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