A dedicated international ETF sleeve is the kind of allocation that survives on principle long after it stops earning its keep. This note attributes a decade of that sleeve’s contribution and asks whether the diversification argument still holds once you account for how correlated developed-market equities have become.
The drag, decomposed
Most of the underperformance is not stock selection — it’s currency and a persistent valuation gap that never closed. Once you hedge the currency and net out the correlation that did show up in every drawdown, the diversification benefit is far thinner than the allocation implied.
What to keep
There’s still a case for a small, currency-hedged, emerging-market slice where the correlation is genuinely lower. The blanket developed-international sleeve, though, was mostly a Sharpe tax dressed as prudence.