The numbers are sobering. While Austrian investors have been pouring capital into “diversified” global equity funds to escape US market concentration, the underlying assets have been moving in near-lockstep with the S&P 500. The promise of geographic diversification has become one of the most expensive illusions in modern investing.
The Correlation Reality Check
Analysis of return data from 1992 through 2025 reveals that the MSCI World ex-US index maintains a staggering 0.82 correlation with the S&P 500 on an annual basis. Monthly data shows an equally troubling 0.81 correlation. This isn’t diversification, it’s shadow dancing.
The data, derived from price series on platforms like Curvo and historical gold charts from Macrotrends, paints a picture that should unsettle any Austrian investor who thought their global equity fund provided meaningful protection.
What makes this particularly relevant for the Austrian market is that many local banks and advisors have been pushing global equity ETFs as a “safer” alternative to pure US exposure. The reality? When US markets sneeze, these “diversified” portfolios catch the same cold.
What the Numbers Actually Show
The correlation matrix tells a brutal story:
- MSCI World ex-US vs S&P 500: 0.8238 (yearly), 0.8135 (monthly)
- Emerging Markets vs S&P 500: 0.5652 (yearly), 0.6943 (monthly)
- Gold vs S&P 500: -0.0360 (yearly), 0.0248 (monthly)
The emerging markets correlation of 0.56 is notably lower, though still significant. Gold, however, shows near-zero correlation, making it one of the few true diversifiers in the analysis.
Why Western Markets Move Together
The high correlation between developed markets stems from interconnected global supply chains, synchronized central bank policies, and the dominance of multinational corporations. When the Federal Reserve raises rates, the European Central Bank often follows. When US consumer demand collapses, European exports suffer.
This synchronization has only intensified since the 2008 financial crisis. Quantitative easing programs, bank stress tests, and coordinated fiscal responses have created a “monoculture” in Western financial markets. Your MSCI World ETF isn’t giving you 23 different countries, it’s giving you 23 different expressions of the same underlying economic forces.
The concentration problem compounds this issue. The iShares MSCI World ETF, a popular choice among Austrian investors, has roughly 70% exposure to US markets when you dig into the actual holdings. The top positions, Nvidia, Apple, Microsoft, are the same names dominating US-focused funds.
The Austrian Investor’s Dilemma
For investors in Austria, this creates a particularly thorny problem. The traditional advice of “put your equity portion in a global ETF” has led to massive overexposure to US tech giants, often without investors realizing it.
Many Austrian brokers and banks have been promoting global equity funds as a way to participate in worldwide growth while reducing risk. But when 70% of your “global” portfolio ultimately depends on Silicon Valley earnings and Federal Reserve policy, you’re not diversified, you’re just paying higher fees for the same underlying exposure.
The Kest (Kapitalertragssteuer) implications make this even more painful. Austrian investors pay 27.5% tax on capital gains, meaning every percentage point of correlation-driven loss hurts more after tax.
What Actually Provides Diversification
If developed market equities don’t provide diversification, what does?
Emerging Markets: With a correlation of 0.56 to the S&P 500, emerging markets offer some degree of independence. However, the 0.87 correlation between emerging markets and MSCI World ex-US suggests they still move with the broader developed market tide.
Gold: The data shows gold maintaining near-zero correlation with US equities (-0.036). This isn’t just theory, during the March 2020 crash, gold initially dipped but quickly recovered while equities continued falling.
Currency Effects: The recent dollar weakness has helped international returns, but this is a cyclical factor, not a structural diversification benefit. When the dollar strengthens again, this tailwind becomes a headwind.
The Portfolio Construction Implications
For Austrian investors, the takeaway is stark: your equity allocation, whether US or global, represents a single risk factor. True diversification requires looking beyond the equity box.
The traditional 70/30 stock/bond portfolio isn’t diversified if the stock portion is essentially one big US tech bet and the bond portion moves inversely to Fed policy. You need assets that respond to different economic drivers.
This means considering:
– Physical gold (not gold mining stocks, which correlate with equities)
– Real estate with local market drivers
– Infrastructure with regulated returns
– Possibly cryptocurrencies, though volatility remains extreme
The Cost of False Diversification
Perhaps the most insidious aspect of this correlation issue is the fee premium investors pay for the illusion. Global equity ETFs often charge 0.20-0.50% annually, compared to 0.03% for a pure S&P 500 fund. If the correlation is 0.82, you’re paying 6-16x more for what amounts to the same underlying risk exposure.
The performance data backs this up. In 2025, the iShares MSCI World ETF delivered strong returns, but this was driven almost entirely by the same US tech names that powered the S&P 500. The “international” portion contributed little independent performance.
Actionable Steps for Austrian Investors
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Audit your holdings: Look through your global equity ETFs and calculate the actual US exposure. It’s likely 60-70%, not the 50% you might expect.
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Rethink your diversification strategy: Instead of adding more equity regions, consider true alternative assets. Gold storage in Austria is straightforward and relatively inexpensive.
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Consider tax implications: The 27.5% Kest makes losses more painful. Focus on after-tax risk-adjusted returns, not pre-tax marketing materials.
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Question the narrative: When your banker recommends a “diversified global equity fund”, ask for the correlation data versus US markets. The silence will be telling.
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Look at historical crisis periods: The 2020 crash and 2008 crisis showed that correlations spike when you need diversification most. Test your portfolio against historical stress scenarios.
The Bottom Line
The data doesn’t lie. For Austrian investors seeking true diversification, global equity ETFs have become a mirage in the desert of low interest rates. They promise geographic diversification but deliver US market correlation with a higher price tag.
The real diversification tools, gold, emerging markets to some degree, and truly alternative assets, require more work and often higher friction to own. But in a world where every central bank is printing money and every developed market is chasing the same tech-driven growth, that extra work is the price of true risk management.
Your portfolio’s safety doesn’t come from the number of countries in your ETF. It comes from owning assets that respond to different economic forces at different times. Everything else is just marketing.
