For years, it’s been a struggle to try to convince many US investors to spread some of their money abroad.
It’s only natural: We simply tend to favor the familiar—our home country—over others. Investors the world over have this natural bias.
But that’s been slowly changing in recent months. Which is great news, because diversifying internationally is a particularly smart move in times like these.
Moreover, when you diversify—especially through 8%+ yielding income investments like closed-end funds (CEFs)—you can easily rebalance your holdings in line with changes in the market, moving more into US stocks when they’re low, say, and international assets are high. And doing the reverse when that situation flips back.
A Striking Reversal
When it comes to recommending the US over the rest of the world in recent years, it’s really just been a case of following the facts: The data simply tells us that US stocks have been the best performers, as a mix of poor policy decisions and inefficient markets in Europe and Asia made those regions less compelling.
The market performance really does speak for itself here, with the S&P 500 handily beating global indices over the long haul. We can see that very clearly when we look at the long-term performance of the SPDR S&P 500 ETF Trust (SPY), in purple below, and the Vanguard FTSE All-World Ex-US ETF (NYSE:VEU), in orange, over the last decade.
American Exceptionalism in One Chart
Lately, however, something quite different has been happening.
Is Investing Outside of America Now the Winning Play?
In 2025, every stock market in the world has been moving up except for America’s. Journalists and bankers have taken notice; the Financial Times recently reported that this is shifting investors’ demand for assets:
“Importantly, this seems to be generating real investor interest, with a lot of sell-side analysts recently mentioning how many questions they’re finally getting about Europe,” the FT recently wrote.
Of course, stock-market volatility means that an asset (or collection of a country’s assets) might outperform in the short term but underperform in the long run.
But this time, it is possible that foreign stocks, just as a sheer matter of reverting to the mean, could recover while American stocks slip further.
This is why one of the best tools in an investor’s toolbox is diversification. It isn’t a matter of choosing either America or foreign stocks. It’s about having both and strategically buying more of one when it’s a better buy than the other.
This is why we hold the BlackRock Enhanced International Dividend Trust (NYSE:BGY) in the portfolio of our CEF Insider service. The fund mostly holds large cap international stocks like pharmaceutical giant AstraZeneca PLC (NASDAQ:AZN), luxury-goods maker LVMH Moet Hennessy Louis Vuitton and German software firm SAP SE (NYSE:SAP).
The fund also generates an extra income stream by selling covered-call options on its portfolio. Under this approach, BGY sells investors the right to buy its stocks at a fixed price and time in the future. No matter what ultimately happens with these trades, the fund keeps the fee it charges for this right.
BGY Outpaces US Stocks
BGY is being driven by the overall momentum in international stocks, of course, even though it’s behind some of the higher-flying international ETFs out there. But we still prefer this fund, for two reasons: the dividend (current yield: 9.1%) and the discount, which points to the further “baked-in” price gains ahead.
Let’s take that second point first.
Unlike ETFs, which always trade very close to par value, CEFs can (and regularly do) trade at different values on the market in relation to their underlying portfolios—a measure called the discount to net asset value (NAV). That’s mainly because, unlike ETFs, CEFs tend to have a fixed share count for their entire lives.
As I write this, BGY trades at a 7.8% discount. That means we’re getting international assets for cheaper than we would through an ETF.
Plus, BGY’s discount has been much smaller in the past, when demand for foreign assets was higher, which means we won’t just get profits as BGY’s holdings appreciate in value. Those gains will also be compounded as market demand for international assets causes BGY’s discount to shrink. Indeed, that has already been happening at a slow pace over the last year.
BGY’s Shrinking Discount
Secondly, the dividend. As mentioned, BGY yields 9.1%, which means the fund will give you a large portion of its profits in cash (I should point out that BGY pays dividends monthly, too). That means you can use that cash to rebalance into US stocks when they slide in value so that in the long term you get profits from both the short-term gains in foreign stocks and the long-term gains in US stocks as they recover.
And, of course, you always have the option to use the $76 per month you get for every $10,000 invested in BGY to do other things, like pay your bills.
This scenario really does highlight many of the greatest things about CEFs: They allow you to diversify—making rebalancing easier in times of volatility and market stress—and give you a large cash stream you can use to be more financially independent. The topper? In the case of BGY, these benefits come our way at a nearly 8% discount, too.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."