Sure, the artificial intelligence buildout is likely to lead to more big gains for U.S. techs in the years to come. But the market is much bigger than the titans of the Nasdaq. With that in mind, strategists at Bank of America are recommending that investors bust out their passports, so to speak, and start searching for better values abroad.

In a research report Wednesday, the BofA team highlighted international value stocks with small market capitalizations and emerging markets dividend players in particular, along with EM debt.

International small-caps should offer “returns similar to US growth with lower volatility, correlation, & valuation,” according to the BofA analysts, adding that many emerging market dividend stocks have yields above 4% and “better returns than benchmarks.”

“Investors deploying new capital may be best served by diversifying beyond AI, into global equity factors with lower correlations to US growth and still attractive returns,” the BofA team added, pointing out that “global value never stopped working.”

To that end, BofA noted that the average annual returns for both emerging market value and Asian value stocks (excluding those in Japan) have outpaced their growth counterparts since 2000. Meanwhile, growth has topped value in America.

The BofA strategists see even more value for international stocks ahead—particularly for small-caps. “On average, these stocks are growing earnings 30% faster than international large caps, with low correlation to US large cap growth and lower valuations.”

The BofA team recommends a basket approach, highlighting exchange-traded funds in particular over individual stocks. They pointed to three specifically: The Dimensional International Small Cap Value ETF, Avantis International Small-Cap Value ETF and iShares International Developed Small Cap Value Factor ETF.

Then there are emerging markets. BofA thinks lower interest rates should be good for high-quality dividend payers, which tend to be cheaper than other EM stocks. They also have lower correlations to U.S. equities and those in other developed markets. The BofA team pointed to two ETFs: The SPDR S&P Emerging Markets Dividend ETF and the WisdomTree Emerging Markets High Dividend Fund.

As for EM debt? Global rate cuts should give bonds outside the U.S. a boost, with more easing from Asian central banks helping emerging markets bond funds in particular. Many international bonds already offer attractive yields.

BofA noted that the BondBloxx JPMorgan USD Emerging Markets 1-10 Year Bond ETF has a yield of 6%, compared with about 4.3% for many other top international bond funds and less than 4% for the benchmark iShares Core U.S. Aggregate Bond ETF. The BofA strategists singled out the State Street SPDR Bloomberg Emerging Markets USD Bond ETF and VanEck Emerging Markets High Yield Bond ETF, which have yields of 5.8% and 6.6%, respectively.

To be sure, the BofA team isn’t calling for a massive pullback in the U.S. market. The analysts even suggest that the AI trade, despite recent speed bumps, still has room to run thanks to the expectation of more rate cuts from the Federal Reserve and continued demand for AI assets.

“The tech ecosystem is set to expand until enterprise buyers, household creditors, or [Federal Open Market Committee] voters say ‘enough’; until then, stay long chipmakers & AI enablers,” the BofA strategists wrote.

But that doesn’t mean that U.S. AI leaders will be the biggest beneficiaries of a worldwide bull market.

“The global rally may have longer legs,” the BofA team wrote, noting that “world policymakers continue pushing for self-reliance and stability, correcting two decades of record imbalances.” That ultimately should lead to further declines for the U.S. dollar, which is great news for the rest of the world—and investors poised to take advantage.

Write to Paul R. La Monica at [email protected]