In light of a weakening U.S. dollar, BlackRock is encouraging advisors and investors to rethink asset allocations, believing the erosion is in the early stages of a multi-year cycle.
The world’s largest asset manager sees significant opportunity in unhedged international equities, arguing that the dollar’s decline could unlock meaningful outperformance abroad for years to come.
A Dollar Losing Its Edge
Global equity markets have already reflected this shift. International stocks have been among the strongest performers this year, bolstered by factors like trade tensions, declining investor confidence in U.S. policy direction, mounting government debt, and expectations of interest rate cuts. Each of these pressures has weighed on the dollar’s strength, reversing a long period in which U.S. economic momentum, relatively higher yields, and the dollar’s reserve currency status acted as consistent tailwinds.
According to BlackRock strategists Gargi Pal Chaudhuri and Kristy Akullian, who co-authored the firm’s August 29 outlook, the implications of this shift are profound:
“We believe we are toward the beginning of a weaker dollar cycle, which has tended to boost international returns — potentially indicating a structural relationship change that requires investors to consider evolving portfolio construction.”
History supports this thesis. Since the 1970s, dollar-weakening cycles have typically lasted an average of eight years. The current cycle, which began less than three years ago, could have significant room to run.
The Case for Unhedged International Equities
For wealth managers, the question becomes how best to position client portfolios for this macro shift. BlackRock’s answer is clear: focus on unhedged international equities.
By owning foreign equities in their local currencies, investors can benefit not only from stock performance but also from the appreciation of those currencies relative to the dollar. While hedged products strip out this exposure to currency fluctuations, unhedged strategies allow advisors and clients to directly capture the tailwinds of dollar weakness.
Of course, this also introduces risk. If foreign currencies fall relative to the dollar, it reduces total return. But with BlackRock’s conviction that the dollar cycle is entering a prolonged downturn, the firm sees the risk-reward trade-off as compelling.
BlackRock itself offers multiple vehicles to capture this theme, including the iShares Core MSCI Total International Stock ETF (IXUS). Other broad-market options are available from competitors, including the Vanguard Total International Stock ETF (VXUS) and the Schwab Emerging Markets Equity ETF (SCHE).
Shifting Flows and Allocation Gaps
Despite the evidence, U.S. advisors remain heavily concentrated in domestic equities. BlackRock notes that the average advisor still allocates nearly 78% of equity exposure to U.S. stocks, up from 70% just seven years ago. This home-country bias has been rewarded during periods of U.S. dominance, but it leaves portfolios vulnerable to structural shifts in global currency and economic dynamics.
That said, flows are beginning to reflect changing sentiment. The portion of ETF inflows directed to international funds rose to 29% this year, up from just 12% last August. Investors have been rewarded: IXUS is up 20% year-to-date in 2025, handily outpacing the S&P 500’s 9% gain over the same period.
Broader sentiment surveys support the case for a reallocation. A Bank of America poll of global fund managers earlier this year found that 54% expect international stocks to be the best-performing asset class over the next five years.
International Equities as a Diversifier
For advisors, the appeal of international equities extends beyond currency dynamics. BlackRock stresses that in the event of a U.S. recession, foreign equities may provide a more effective hedge than domestic small caps, which remain tethered to the same macro forces impacting U.S. large caps.
Phil Hodges, co-lead of the Systematic Equities Macro Group at BlackRock, underscores this point:
“Lower correlation and corporate reforms in certain parts of the world suggest that most investors could benefit unconditionally from owning more international stocks and seeking alpha in international markets as well as the U.S. markets.”
By spreading exposure across markets with distinct growth drivers, fiscal policies, and reform agendas, advisors can position client portfolios for better resilience against domestic shocks.
A Strategic Recalibration for Advisors
For RIAs and wealth managers, the implications of BlackRock’s analysis are far-reaching. Advisors who remain overexposed to U.S. equities risk missing out on a potentially defining investment theme of the next decade. More importantly, clients who are accustomed to U.S.-centric portfolios may be under-diversified at precisely the wrong time.
In practice, advisors can approach this recalibration in several ways:
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Gradual Portfolio Shifts
Begin by trimming overweight U.S. equity positions and rebalancing toward broad-based international exposures. Using unhedged ETFs allows for efficient execution without the need to manage currency overlays. -
Targeted Emerging Market Allocations
Dollar weakness tends to amplify performance in emerging markets, where local currency appreciation often compounds underlying equity gains. Funds like SCHE provide diversified exposure to these regions. -
Client Education on Currency Exposure
Many clients may not fully understand the difference between hedged and unhedged international positions. Advisors can add value by explaining how currency exposure works, the potential benefits in today’s environment, and the risks involved. -
Incorporating International Equities into Diversification Conversations
For clients concerned about market downturns, advisors can emphasize that global equities provide diversification benefits not always replicated by traditional U.S. small-cap allocations.
Looking Ahead
If BlackRock’s outlook proves correct, the dollar’s decline is still in its early innings. A weaker greenback could mark the end of a decades-long structural bull market for the currency, reshaping cross-border capital flows, corporate earnings dynamics, and investment returns.
For advisors, this presents both a challenge and an opportunity. The challenge lies in adjusting client portfolios that may be deeply U.S.-centric. The opportunity is to lead those clients toward a more globally balanced allocation that can benefit from one of the most powerful macro trends now unfolding.
BlackRock’s message is direct: the time to reallocate is not years down the road but now, while the cycle is still young. By leaning into unhedged international equities, advisors can not only enhance return potential but also deliver better long-term diversification for their clients.
In short, a structurally weaker dollar is not just a macro headline. It is a portfolio construction issue — one that wealth managers who act early may turn into a competitive advantage.
