Part II in the series by Antti Ilmanen applies the ideas to expectations for U.S. equities versus the rest of the world by analyzing the drivers of relative performance—in particular the different roles of fundamentals and valuations—and assessing the most likely implications for future returns.
Exceptional Expectations: U.S. vs. Non-U.S. Equities
AQR
Antti Ilmanen
Research
12 Pages
Key Takeaways
Valuation expansion drove U.S. outperformance: Since 1990, the majority of U.S. equity outperformance stems from increasing valuation multiples rather than earnings growth.
Current valuation gap is unprecedented: By the end of 2024, U.S. equities were nearly twice as expensive as non-U.S. equities, marking a historical extreme.
Mean reversion favors non-U.S. equities: Historical patterns suggest that such valuation disparities often correct over time, potentially benefiting international investors.
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