Optimize your portfolios

Portfolio Playbook: Diversifying into international

A weakened dollar could be a catalyst for non-US stocks. In September, we've upped our international stock allocation and still favor defensive sectors. Optimize your portfolios with our monthly outlook and allocation guidance.

A road with lake on side with mountains

A weakened dollar is a potential catalyst for outperformance in non-US stocks.

The global picture remained broadly stable. Economic data has performed in line with expectations and macro volatility was subdued. While growth has been below the long-term trend and last year’s rate,1 it’s enough to maintain positive employment growth. Business and consumer sentiment surveys seem to have adjusted and stabilized in response to global trade policy uncertainty. The full impact of tariffs on both growth and inflation, however, may likely be more visible this quarter, as the front loading of imports and inventories wears off.

Our barometer of global risk appetite marginally improved over the past month. But our macro framework remains in a contraction regime for the global economy for the 15th consecutive month, as it continues to point towards below-trend and decelerating growth.

In stocks, we continue to favor defensive sectors and factors. The recent dovish turn by the Federal Reserve has led to a meaningful repricing of monetary policy expectations, with narrowing yield differentials between the US and the rest of the world. Our models indicate this trend is likely to continue. While the US dollar still enjoys higher yields than its developed market peers,2 this anticipated erosion of the US yield advantage has historically put downward pressure on the dollar,3 providing a potential catalyst for outperformance in non-US stocks.

In bonds, we maintain a moderate overweight in duration and underweight in credit risk.

Business cycle

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  • Recession doesn’t appear imminent
  • Broad-based economic statistics not collapsing 
  • Credit spreads still contained

Risk profile

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  • Risk appetite is modestly improving
  • Leading economic indicators show below trend and decelerating demand

Policy implications

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  • Federal Reserve likely to look beyond tariff price shocks 
  • Rate cuts are likely imminent

Business cycle

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  • “Soft landing” for economy
  • Resilient growth
  • Contained inflation

Risk profile

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  • Above-trend global economic rate 
  • Improved policy backdrop
  • Risk-on sentiment

Policy implications

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  • Contained inflation
  • Easing Fed policy 

Business cycle

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  • Deteriorating sentiment
  • Rising trade and monetary policy uncertainty
  • Reaccelerating inflation
  • Prolonged recession

Risk profile

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  • Deteriorating leading economic indicators
  • Flight to quality 

Policy implications

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  • Tightening Fed policy

Asset allocations to consider:
In September, we've added international and still favor low volatility US stocks.

A challenge for tactical investors is preparing for the expected and anticipating the unexpected. The tactical asset allocation (TAA) framework from the Invesco Solutions team is designed to enhance a long-term strategic asset allocation (SAA) by making portfolio tilts based on near-term market views.

The tactical, dynamic factor rotation shown below is also utilized in the Invesco Russell 1000® Dynamic Multifactor ETF (OMFL).



  • The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.



  • The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.



  • The Invesco Solutions team develops portfolios for client-oriented outcomes over multiple time horizons. Our tactical asset allocation (TAA), regime-based framework dynamically adjusts exposures to asset classes, regions, sectors, and factors, to create multi-asset portfolios designed for the prevailing macroeconomic environment. Strategic asset allocation (SAA) positioning is derived from our rigorous investment process, which consists of long-term capital market assumptions (CMAs), portfolio optimization, and risk management.

  • 1

    Source: Bloomberg L.P., Aug. 31, 2025, based on the 1.4% (annualized) US GDP growth in the first half of 2025, compared to the 2.8% full-year 2024 US growth, and the 2.7% long-term historical annual average US growth rate.

  • 2

    Source: Bloomberg L.P., Aug. 31, 2025, based on interest rate differentials between US Treasury bonds and the yields on sovereign debt issued by non-US developed market countries. The 2-year US Treasury currently yields 3.62%, while the average 2-year sovereign yield across other G7 countries (Canada, France, Germany, Italy, Japan, and the UK) is 2.3%, compared to 4.24% and 2.44%, respectively, at the beginning of 2025.

  • 3

    Source: Bloomberg L.P., Aug. 31, 2025, based on the interest rate differential between sovereign debt issued by the US versus other non-US developed market countries compared to the value of the US Dollar Index. The strength of the US dollar has historically followed the interest rate differential between the US and other countries, with a widening differential in favor of the US, leading to US dollar strength, and a narrowing differential, leading to US dollar weakness.