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Three considerations in favor of non-U.S. equities

March 7, 2023
clock 5 MIN READ

For the ten-year period ending 12/31/2022, U.S. equity markets outperformed non-U.S. markets by 7.78% annualized, with the MSCI USA Index returning 12.45% versus just 4.67% for the MSCI EAFE Index. In U.S.-dollar terms, an investor who started with $1 million in each index ten years ago would have over $1.6 million more today in the U.S. portfolio than the non-U.S. portfolio. With the significant strength in U.S. markets over the last ten years, one could see why investors may doubt their strategic allocation to non-U.S. equities.

Long-term valuations have diverged

Over time, one could argue that over a sufficiently long time horizon, U.S. and non-U.S. equities should have fairly similar performance. Nevertheless, over any period a host of factors can and do cause differences in performance:

  • gross domestic product (GDP) growth
  • demographics
  • inflation
  • interest rates
  • geopolitics
  • currencies
  • sector composition

Extremes typically occur when investors think things “can’t get any better” in one segment of the global economy, while shunning others that have experienced tougher times. Exhibit 1 shows the rolling difference in 10-year total returns between U.S. and non-U.S. markets. Clearly, there can be wide differences in relative performance over any given time period.

Important information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Positioning and holdings are subject to change. All information as of the date indicated. There are risks involved with investing, including possible loss of principal. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information.

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