The late-great Jimmy Buffett has been a staple in the music world for many decades.  The legendary storyteller mastered the art of escapism through his laid-back style and magical tales.  The tune “He Went Paris” is a narrative about an old man’s bittersweet memories.  The tune serves as inspiration this week for a very popular topic in 2025 – investing internationally.  The team at Lear has invested internationally for three decades and has learned some valuable lessons – akin to the character in the song.

Investors have been flocking to international markets lately, adding significant exposure to broad indexes like the MSCI EAFA Index. This trend might seem promising—after all, international indexes have delivered strong performance in 2025. But before we start uncorking the Bordeaux, let’s pause and ask: Is this really the best investment strategy for future gains? Spoiler alert: It’s not. We believe in digging deeper and avoiding lazy investment decisions. Let’s unpack why the MSCI EAFA Index might not be the shining star it appears to be.

“He went to Paris, looking for answers,

To questions that bother him so.”

Investing in the MSCI EAFA Index is like ordering 85% of everything on the menu from every restaurant in 21 countries. 

These broad indexes are allocated to countries based on size rather than opportunity, economic situation or potential growth. While this may sound democratic, it’s also mindless.

Here’s the kicker: The MSCI EAFA Index is heavily weighted toward financials.  The current weight is 24% (According to March 31, 2025 Fact Sheet).  Moreover, the index has low exposures to sectors like technology and energy—areas that are not just exciting but also pivotal to future growth.

Sure, international markets look cheap on paper. But why are they cheap? Financials are inexpensive because they’re struggling, not because they’re diamonds in the rough. And the current rally? Many analysts call it a “dead cat bounce”—a temporary rebound that’s less about strength and more about hitting rock bottom.

One argument for international investing is the falling U.S. dollar, which has dropped 9% this year. While a weaker dollar might make overseas profits look better, the story doesn’t end there.

First, we don’t see the dollar falling much further from here, especially compared to the euro. After all, why would investors rush toward euros when interest rates in Europe aren’t significantly higher? If anything, there may be renewed demand for U.S. dollars should a trade deal materialize or geopolitical dynamics shift. Betting big on currency changes isn’t exactly a strategy—it’s a gamble. 

We believe there are better ways to hedge dollar currency risk – like gold or Bitcoin.

Let’s talk about Europe because the MSCI EAFA Index has a hefty European allocation. Here’s the reality: many countries in Europe are staring down the barrel of a potential recession. Energy shortages, political challenges, and the inherent difficulties of the European Union experiment are all weighing heavily on the region.  There are countries doing well in the region, so why not own just those countries?

The EU’s common currency has proven to be a mixed bag, particularly for navigating economic disparities between member states. And when it comes to energy and tech—two sectors crucial for global growth—Europe is way behind.

The chart below displays the estimated earnings for the stocks in the MSCI EAFE Index.  Notice the trend down in earnings.  There has been a recent bounce this year, but the trend is still questionable.

  (Source: Bloomberg – as of June 10, 2025)

At Lear Investment Management, we’re not saying international investing is inherently bad. Far from it. Some of our best-performing stocks hail from countries like Japan and India. But we pick individual stocks based on specific attributes—like economic policies, sector opportunities, and innovation—not because an index allocated them based on size.

If hedging against a weak dollar is your goal, consider commodities or gold instead. These offer a more stable and strategic way to diversify.

"So he hopped on a freighter, skidded the ocean

And left England without a sound."

Broad index investing is, let’s face it, lazy. The MSCI EAFA Index might look appealing on its surface, but once you dig deeper, the weaknesses become glaring. From its heavy allocation to struggling European financials to its underweighting of critical sectors like technology and energy, this index simply doesn’t deliver the kind of thoughtful investment strategy we advocate at Lear Investment Management.

We believe in vigilance, precision, and a touch of fun—because investing doesn’t have to be boring, but it should always be smart.

The MSCI EAFE Index is a stock market index that measures the performance of large and mid-cap developed market equities, excluding the United States and Canada. It represents the stock markets of Europe, Australasia, and the Far East. The index is maintained by MSCI Inc.. 

Lear Investment Management (“LIM”) is a Registered Investment Advisor based in Dallas, Texas and registered with the Securities and Exchange Commission. Registration does not imply a certain level of skills or training. This content is for informational purposes only, contains the observations and opinions of LIM, is not intended to provide investment advice, and should not be relied upon for investment decisions. Past performance is no guarantee of future results and information pertaining to LIM’s processes is subject to change at any time without notice.

This document is intended for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. The information contained herein is not intended to be, and should not be construed as, investment advice. The views and opinions expressed in this document are those of the authors and do not necessarily reflect the official policy or position of any SEC registered investment firm.

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