Are global markets shifting? | International equity market commentary 1Q 2025
Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
In plain words
This report asks whether global markets are shifting. For the past decade, money piled into a few giant US stocks (like Nvidia and Tesla), making the US account for over 70% of global indexes despite only 25% of global GDP. That extreme gap is now starting to close, the report argues, and international stocks—especially in Europe—look cheap and promising. For ordinary investors, it means don't just chase US winners; diversifying overseas could pay off over time. It's worth reading because past patterns show such big gaps often reverse.
Oakmark's first-quarter 2025 report notes that global markets are undergoing a structural shift. Despite market turbulence, the Oakmark International Fund (quarterly return of 7.88%) and the International Small Cap Fund (quarterly return of 8.24%) both delivered positive returns. The core argument i
Theme and Background
This chapter examines whether global markets are undergoing a structural shift. The report notes that over the past decade, capital has been excessively concentrated in a handful of U.S. growth stocks, pushing the U.S. weight in global indices above 70%, while its GDP share is only about 25%. This has resulted in a record valuation gap between U.S. and non-U.S. equities. Despite market turbulence in the first quarter of 2025, both the Oakmark International Fund and the International Small Cap Fund delivered positive returns.
Core Thesis
The author’s core investment argument is that market mean reversion has already begun, and the massive valuation imbalance will fuel a sustained improvement in international equity performance. The counterintuitive judgment is that, despite uncertainties from tariff policies, European equities have shown improvement due to sustained earnings, Germany’s relaxation of fiscal constraints, and expectations of regulatory reforms, partially narrowing the value gap. The author believes the trend of capital flowing from U.S. growth stocks to international value stocks is not yet over, as the valuation gap remains substantial.
Key Arguments and Data
- Capital Concentration: The U.S. accounts for over 70% of global index weight, yet only about 25% of global GDP.
- Valuation Gap: Over the past 10 years, U.S. stocks (led by growth stocks) have outperformed non-U.S. stocks by approximately 9% annually, creating a record valuation disparity.
- Specific Examples: Nvidia reached a peak market cap of $3.6 trillion, and Tesla exceeded $1 trillion.
- Factors Improving Europe:
- Sustained earnings
- Germany’s relaxation of fiscal constraints
- The EU and UK focusing on the impact of regulatory burdens on economic growth
- Tariff Impact: The author argues that widespread use of high tariffs will lead to inflation and economic distortions, increasing uncertainty and thereby dampening consumption and investment—effects already reflected in negative stock price performance.
Oakmark International Fund has delivered an average annual return of 8.37% since inception, 13.78% over the past five years, and 7.88% in the most recent quarter, with an expense ratio of 1.05%.
| Metric | Data |
|---|---|
| U.S. Weight in Global Indices | >70% |
| U.S. Share of Global GDP | ~25% |
| Annualized U.S. vs. Non-U.S. Excess Return (Past 10 Years) | ~9% |
| Nvidia Peak Market Cap | $3.6 Trillion |
| Tesla Peak Market Cap | >$1 Trillion |
| Oakmark International Fund 1Q25 Return | 7.88% |
| Oakmark International Small Cap Fund 1Q25 Return | 8.24% |
Oakmark International Small Cap Fund has delivered an average annual return of 8.48% since inception, 16.84% over the past five years, and 8.24% in the most recent quarter, with an expense ratio of 1.33%.
Companies/Assets Involved
- Nvidia: Cited as a representative U.S. growth stock, with a peak market cap of $3.6 trillion; the Oakmark fund holds 0% of its position.
- Tesla: Cited as a representative U.S. growth stock, with a peak market cap exceeding $1 trillion; the Oakmark fund holds 0% of its position.
- Oakmark International Fund: Quarterly return of 7.88%; annualized return of 8.37% since inception (September 1992).
- Oakmark International Small Cap Fund: Quarterly return of 8.24%; annualized return of 8.48% since inception (November 1995).
Investment Implications
- Long International Equities (Especially Europe): The report argues that the valuation gap remains enormous, and mean reversion will drive long-term performance improvements in international equities. Europe benefits relatively from sustained earnings, fiscal, and regulatory reforms.
- Beware of U.S. Growth Stock Concentration Risk: Capital is excessively concentrated in a few high-valuation stocks, and historical valuation gaps suggest a potential reversal in future returns.
- Monitor Tariff Policy Impact on Valuations: The author will adjust portfolio valuations based on policy changes but emphasizes that fundamentals will ultimately dominate the market.