For many state pensions that sought growth outside the U.S., the bet is paying off.<\/p>\n
Strong gains in non-U.S. and emerging market equities have helped propel several public plans like the Louisiana State Employees\u2019 Retirement System and New York State Common Retirement Fund to double-digit returns for their 2026 fiscal years (18.4 percent and 11.9 percent, respectively).<\/p>\n
Louisiana State chief investment officer Bobby Beale attributed much of the $18.7 billion plan\u2019s strong return to \u201cbroad strength in equities.\u201d While domestic equities returned 27.4 percent, Louisiana\u2019s emerging market and international small-cap holdings returned 48.7 percent and 31.8 percent, respectively. The plan\u2019s 2025 report lists three active managers \u2014 City of London, Westwood, and LSV \u2014 in charge of its emerging market holdings; China is the top exposure. Louisiana State allocates 20.1 percent to international stocks overall.<\/p>\n
Meanwhile, New York State\u2019s annual return was also boosted by its roughly 13 percent allocation to non-U.S. equities, which returned 24.41 percent for the fiscal year. The $295.4 billion state fund invested $1.4 billion in overseas equities earlier this year, allocating $700 million each to an emerging markets fund managed by RBC and the MFS International Growth Equity Fund.<\/p>\n
Louisiana and New York aren\u2019t the only state plans to see a boost from public international markets: Both of California\u2019s state employee plans posted strong performance thanks to big gains in global stocks. The $637.1 billion California Public Employees\u2019 Retirement System (CalPERS) returned a net 14.8 percent for the 12-month period ending June 30, while the $415.4 billion State Teachers\u2019 Retirement System (CalSTRS), which is looking to expand further into emerging markets through its partnership with active manager ABS Global, returned a net 13.9 percent for its latest fiscal year. The state plans for Maryland and Rhode Island also saw their annual returns get a lift from international stocks.<\/p>\n
After years of U.S. stocks leading global equity markets, many institutional investors have increased their allocations overseas, drawn by more attractive valuations, concerns over U.S. policy uncertainty, and signs that the hegemony of American large-cap tech stocks may be fading. While the S&P 500 rose by nearly 18 percent over 2025, the MSCI World ex USA Index went up by nearly 32 percent last year, while the MSCI Emerging Markets Index saw a gain of almost 34 percent.<\/p>\n
In an environment favoring value-oriented and cyclical exposures, many traditional quality growth managers are feeling the wind at their backs. According to NEPC\u2019s head of marketable equity research Nedelina Petkova, strong performance from financials, industrials, and defense-related businesses and ongoing improvements in Japan have helped international developed markets. Plus, Petkova wrote that EAFE (Europe, Australasia, and the Far East) performance \u201chas been less dependent on a small number of technology companies and reflects a broader set of economic drivers than the U.S. market.\u201d<\/p>\n
Meanwhile, several market trends have shaped emerging market performance this year. Many active managers were hurt by the sharp underperformance of quality stocks. Portfolios that were overweight India and China and underweight Korea also lagged, as Korea outperformed both markets.<\/p>\n
Beyond this year\u2019s specific drivers, some investors see broader structural forces supporting international and emerging markets over the longer term. Rich Nuzum, head of OCIO at Franklin Templeton, explained over email that \u201cwhile much has been written about trade tensions and some pundits continue to talk about deglobalization,\u201d foreign direct investment flows across the international and emerging markets excluding the U.S. and China \u201cgenerally continue to increase rapidly.\u201d<\/p>\n
Nuzum added that \u201cthe rapid growth of wealth, and of a middle class of consumers, across emerging markets, is an additional tailwind.\u201d<\/p>\n