GMO examines how home country bias may push investors toward expensive U.S. equities despite stronger opportunities abroad. The paper argues recent U.S. outperformance reflects recency bias, noting American investors keep over 70% of equity exposure domestically while the U.S. represents less than 50% of capitalization.
America Is Great. Home Country Bias Ain’t.
GMO
Rick Friedman
Research
4 Pages
Key Takeaways
Extreme Home Bias: U.S. investors allocate over 70% of equities domestically even though America represents under 50% of global equity market capitalization.
Performance Gap Widened: From February 2009 through March 2017, the S&P 500 returned 18.0% annually versus 10.8% for MSCI EAFE and 11.2% for emerging markets.
Valuations Look Stretched: U.S. equities traded at a 29x CAPE ratio in 2016, reaching valuation levels previously seen in 1929, the TMT bubble, and before the GFC.
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