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US equity outperformance (yellow) over the past 10yrs is quite something (white=EURxUK; green=UK; purple=Japan; red=EM).
Lots of folks scream that this is evidence of richness. Difference largely accounted for by relative earnings growth. Added long UST to the chart to show what zero EPS chg + lots of duration got you:
Grouping global equities into region-sector buckets, here's how last 10yrs breaks down. US had more earnings, had higher returns.
Same chart, with US GICS sectors highlighted in red:
Same chart, with Europe ex-UK highlighted in red:
Same chart, with UK highlighted in red:
Same chart, this time with the size of dots corresponding to the weight in ACWI.
Size of dots correspond to global equity weight, with US GICS shaded red
This could be read as "well, sure, because things don't get richer or cheaper in perpetuity". Fair point.
(Weird outliers are all Japanese & EM, where sectors are tiny and consist of one or two firms where weird stuff happened)
(Weird outliers are all Japanese & EM, where sectors are tiny and consist of one or two firms where weird stuff happened)
From my perspective, serves as a decent reminder that 1) earnings are key to differential performance; 2) the importance of lower long-yields to all asset returns shouldn't be underestimated.
