Will the U.S. Continue to Have Good Performance?
From 2000 to 2009, the U.S. experienced one of its worst investment performance, returning a grand total of -9.10% while emerging markets raced ahead with a total gain of +165.95% in the same period.
The expectation for emerging markets to continue having the same growth after 2009 (think of the China growth story) could have led investors to continue holding on to emerging markets (mostly or exclusively), which unfortunately would have eventually led them to lose out on huge gains in the U.S across the next decade.
From 2009-2022, large U.S. companies delivered +13.1% returns per year, trouncing all other markets and exceeding its long-term historical return of 10%.
We wrote in “Too Much of a Good Thing Can Be Bad” that when returns come in excess, they tend to be borrowed from the future and have to be “repaid” at some point in time. Lest you think that this is a recent phenomenon, we showed in ”The Case for International Diversification” that this has been repeated in history time and time again.
In this decade, U.S. has been trudging ahead over the past 3 years, extending its relative outperformance into its 13th year since 2010. However, this does not mean that the U.S. outperformance is guaranteed in this decade. For example, during the 1990s, the U.S. was lagging behind emerging markets for the majority of the decade up to the end of 1996 before rising tremendously over the ensuing 3 years in the lead up to the Dotcom crash at the turn of the millennia.
History never repeats itself, but it often rhymes.
— a quote often attributed to Mark Twain
Rather than forecast which countries or regions are going to be the leaders this decade, investors should take out the guesswork and focus on the proven drivers of returns. As we approach the year end and set new year goal’s and resolutions for 2024, let global diversification be one of your ‘actionables’ for 2024.
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