Second Rate Cut Emphasizes International Equities Diversification

The U.S. Federal Reserve instituted a second rate cut of the year, which could only add more fuel to the international assets flame that’s been burning bright for much of 2025. Further rate cuts will only apply additional downforce to the U.S. dollar, creating additional tailwinds for international equities.

Thornburg Investment Management mentioned a greenback in decline on their latest market insight: What Investors Need to Know About Markets and Macro Now. In particular, Matt Burdett, who serves as the firm’s head of equities and portfolio manager, noted that the declining dollar is conducive to a macroeconomic backdrop that favors international equities.

“Obviously, the dollar weakening has been beneficial to non-U.S. equity returns in 2025,” said Burdett. “The euro stock returns are dramatically different in euros versus dollars.”

The strength of international equities can typically tie to the strength of their local fiat currencies. Again, a weaker greenback can translate to further strength, which further supports the investment case for investing outside of U.S. borders.

“The MSCI World Index is roughly two-thirds dollars, and then the (Bloomberg U.S.) Agg Index is all dollars,” he added. “We often consider whether it makes sense to continue hedge currencies. We consider the direction of the dollar. But this is a risk mitigation process that we’re using, and in periods of exogenous shock, which means you don’t know when they happen or what will cause them, the dollar can tend to move higher, and so the hedge is there to help with that as well.”

An Active Advantage in International Equities

Investors intrigued by exposure to international equities after this rate cut will want to consider active strategies. Given this, Thornburg has a pair of funds that should receive prime consideration: the Thornburg International Equity ETF (TXUE) as well as the Thornburg International Growth Fund ETF (TXUG).

TXUE can provide broad international equities exposure while TXUG allows investors to lean more into the growth factor—an ideal alternative especially if large cap U.S. growth stock valuations look exorbitant. The actively managed funds leverage the expertise and experience of Thornburg’s investment management team that can navigate international markets that come with their own unique set of idiosyncrasies and risks.

“There’s going to be political things going on everywhere, just like in the U.S.,” Burdett added. “We try to buy at a price with a margin of safety. In general, the businesses we own are relatively shielded from a lot of the political noise.”

Burdett went into greater depth on international equities during a recent webinar: Going Global: An Advisor’s Guide To Looking Beyond the US. Also, click here to learn more about TXUE and TXUG as well as Thornburg’s full suite of ETFs.

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