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Most pundits believe Tech’s leadership run is done, claiming vaccine rollouts, re-openings, rising interest rates and looming inflation drive the nails in its coffin. They point to Tech’s year-to-date lag globally versus areas like Energy and Financials—arguing that trend will last. Maybe! But I think it is all just a countertrend head fake before Tech’s roll resumes. Regardless, these swings offer a key lesson: Investing in any single country or region—big or small—carries hidden sector decisions. To truly diversify, you must think globally. Always! Here is why.

In the past decade, US stocks rose 291%, trouncing the rest of the developed world’s 79%. A big reason? Tech. America’s largest sector soared 587%. Huge “Tech-like” stocks in other sectors further juiced US returns (Apple and Amazon as examples).

Benchmarking to broad US indexes thus involves an active, often unconsidered, Tech bias. Tech and Tech-like firms are roughly one-third of US market capitalization. In the developed world outside America, Tech is only the sixth-largest sector. It makes up just 13% of Japan’s market cap, 10% of continental Europe’s and 1% of the UK’s. Those seeing broad US indexes as a one-size-fits-all, diversified index unknowingly buy a skewed, Tech-heavy diet. Sometimes for better. Sometimes for worse.

Sector skew applies almost everywhere. Collectively, the rest of the developed world sports a heavy tilt away from Tech and towards the “old economy”—Industrials, Materials and Energy stocks are 28% of non-US market cap, double America’s 14%. But individual regions and countries vary vastly. In Europe, Germany’s markets are 37% Industrials and Consumer Discretionary, with 13% of total German market cap auto-related—fully five times the world’s 2.4%. French markets look similar at a sector level: 43% Industrials and Consumer Discretionary. But its Discretionary sector is nearly entirely Luxury Goods firms. Italy is 31% economically sensitive Financials and 24% defensive Utilities—eight times the world average. The UK is 19% Financials and 20% Staples, well above the world’s 14% and 7%, respectively.

Outside Europe, Japan is 40% Industrials and Consumer Discretionary with loads of autos, machinery and electronics. Australia is over 35% Financials—and 18% Metals and Mining firms, an industry totaling just 1.6% globally. Canada is similarly bank-and-mining heavy but also features an Energy sector four times bigger than the world’s.

All these countries’ indexes shift in and out of favor, normally paralleling industry trends. With Energy, Financials, Mining and Industrials all leading this year thus far, it is no shock world-leading markets include Canada, the UK, Italy and France. I don’t expect this to last, though, as I have noted here before. The case for these value sectors—quickening economic growth and high hopes for stimulus—is both widely known and overblown.

So despite Tech’s recent lag, tailwinds still favor Tech and big growth stocks. But that won’t last forever. Leadership shifts, often dramatically.

Consider: In the US, Tech led all sectors in the 2010s and 1990s. In the 2000s, it was the worst. That wasn’t just because of the dot-com bust—Tech was tepid in the ensuing bull market, too. Energy was the 1990s’ third-worst sector, the 2000s’ best and the 2010s’ worst. The 1990s’ laggard, Utilities, roared to third-best in the 2000s. No sector—or country—leads forever.

Why? Supply and demand. Booming sectors lure investors, so investment bankers push new firms public in them—see 2021’s Tech-led IPO boom. As supply rises to meet the quantity demanded—and overshoot, surpassing it—demand for the category of stocks and their leadership falters. Sometimes, returns turn tepid for years. Other times, fast plunges follow—like the 1990s Tech boom-turned-bust, when a glut of new Tech shares overwhelmed demand. This supply expansion and contraction is among markets’ biggest and most basic long-term drivers. It underpins leadership rotations.  Sectors don’t lead or lag forever (although industries within sectors can go kaput).

When hot industries or sectors slump, many chase heat elsewhere—a loser’s game. That makes using a global benchmark like the MSCI World Index or All-World Index crucial. They relatively right-size categories, limiting any one area’s excessive bets—critical in markets where one or two areas dominate. It is also important for more subtly skewed markets like America’s. Doing so discourages heat-chasing and the temptation to sell after big declines price in dour, easily surpassable expectations—just when investors should be buying.

Ultra-narrow portfolios can soar when their tilts are in favor—and collapse when leadership shifts. Always thinking global first offers true diversification, letting you better manage risk and capture return. Remember: It’s a big, beautiful world with a lot of diversity and variance. Think globally. Always!

Ken Fisher, the founder, Executive Chairman and co-CIO of Fisher Investments, authored 11 books and is a widely published global investment columnist. For more, see Ken’s full bio, here

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