Multi-Asset Investors: Four Change Drivers Giving US Assets a Global Edge

07 November 2023
4 min read

Multi-asset strategies have benefited from US exposure for decades, and we don’t think that will change—even as the world continues to evolve.

Managing multi-asset strategies integrates a broad spectrum of inputs, from macroeconomic trends to market developments. It also involves combining a range of underlying building blocks, which help a given strategy achieve its desired outcome.

US exposure across asset classes form a key part of this process, and we believe that there’s support for them to remain relatively attractive versus other developed markets, even as some investors wonder whether their leadership will fade. We expect this to be driven by several important secular trends that, we believe, will alter the global macro landscape.   

Can US Equity Momentum Hold? 

Since 2013, US stocks have outperformed other developed markets by about 7% on an annualized basis, which would have nearly doubled the ending value of an initial investment by September 2023 (Display left). Behind this momentum was consistently solid earnings growth, nearly twice that of non-US companies (Display right). 

The contrast is even sharper for growth stocks, which include many US-based tech leaders. In fact, US growth equities, represented by the MSCI USA Growth Index, outpaced the MSCI World ex USA benchmark by almost 10% annualized for the 10-year period. Year to date through the end of September, the US advantage for US growth stocks was 21%.

US Equities Have Outperformed and Outearned
 US-based stocks have surpassed global peers since 2013, both in terms of returns and corporate earnings growth.

Past performance does not guarantee future results.
US stocks represented by MSCI USA; global stocks ex US represented by MSCI World ex USA.
As of 30 September 2023 
Source: MSCI and AllianceBernstein (AB)

Despite the strong showing, some investors may question whether the US leadership trend will reverse course—but we’re optimistic.

We see four megatrends in particular influencing how companies will operate and compete in the next decade, and expect many to make the US attractive compared to other developed markets.

These secular trends include changing demographics, deglobalization and climate change. Right alongside them is the ongoing digital revolution and explosion of artificial intelligence (AI), of which we expect the US to be a key beneficiary.  

Digitalization, AI and Beyond: As Tech Advances, So Should US Firms  

Most of the US equity market’s recent outperformance is tied to the excitement around AI’s growing penetration across industries which we think will drive secular growth for years. As greater spending on AI and other next-generation initiatives benefit technology, US equities should become relatively appealing overall, given that the US market is more heavily tilted towards tech companies (Display). 

US Markets Have Much Higher Tech Exposure than Global Peers
 Technology companies make up about 3.5 times more share of the US equities market than they do in other developed markets.

For illustrative purposes only
US stocks represented by MSCI USA; global stocks by MSCI World ex USA. Cyclicals include financials, industrials, energy, materials and consumer discretionary; technology includes information technology; defensives include healthcare, consumer staples, utilities and real estate. Numbers may not sum due to rounding. 
As of 30 September 2023 
Source: MSCI and AB

Demographics: Reversing the Effects of Aging in America

The world population is getting older on average, the result of falling birth rates and longer life expectancies just about everywhere. It’s now likely that the number of working-age people in developed-market economies has likely peaked and will steadily decline in the coming decades. 

Fewer workers, a challenge that seems more acute in China than in the West, strongly implies a decline in real economic growth, unless there’s a sustained increase in productivity by other means. AI may help, but it’s not yet a practical solution. 

Increasing the labor-force participation rate among older workers could help offset overall workforce shrinkage. This trend is underway in the US, where the participation rate of those 65 and older is already 24%, higher than that of most developed countries. China’s rate for the age 65–79 cohort is just over 20%. If it stays in that range, the baseline scenario still shows a prolonged decline in the working-age population ahead, along with lower productivity and slower economic growth. 

Deglobalization: US Self Sufficiency Has Improved

Globalization rose rapidly after World War II, as measured by world trade as a share of global gross domestic product (GDP). It really accelerated between 1980 and the 2000s, as China opened its markets, more large firms leveraged offshore labor and new technology improved the reach and scale of successful firms. But globalization has been in gentle retreat for about the last 10 years (Display).

Growth in World Trade* Has Flattened Since 2011
Percent
 The contribution of imports and exports to global GDP had steadily risen for decades but began to level off about 12 years ago.

Historical analysis and current estimates do not guarantee future results.
*The sum of exports and imports of goods and services measured as a share of global gross domestic product As of 31 December 2021
Source: Our World in Data (1945 through 1969 ), World Bank (1970 through 2021) and AB

Deglobalization impairs economic growth by reducing trade and addressable markets, though it’s difficult to forecast its scale. Certain trade-dependent nations could be more at risk, but the US economy could be large enough to absorb some amount of shock. 

Germany, for example, could face significant headwinds, given its reliance on Russia for energy, China for exports and the US for a defense umbrella. Meanwhile, the US has become self-sufficient in key commodities, and has one of the most robust demographic profiles among developed nations. “Reshoring,” or bringing supply chains back in-country, has been effective so far, thanks in part to fiscal policies. In fact, US manufacturing CFOs are more likely to relocate their supply chains to the US than anywhere else, according to one survey.*

(1.5) Degrees and Climate Change: Regional Impact Will Vary, as Will Opportunities 

While the Paris Agreement focused global commitments to reduce greenhouse gas emissions and limit temperature increases in this century to 1.5 degrees above pre-industrial levels, forecasting the effects of climate change on economic growth is harder to pin down. There are multiple effects and linkages, such as rising temperatures and sea levels, more extreme weather events, potential loss of habitats and biodiversity, conflicts over resources and pressure on migration. All these will likely vary significantly across regions. 

Among regions, the greatest burden will likely be felt by emerging markets, which provide both the biggest supply of, and demand for, natural resources. They’re also most likely to feel the physical effects of rising baseline temperatures and have the least capacity to cope with climate variability and extremes. Among developed nations, the differences are likely to be more modest. In Europe, production is likely to rise with temperatures, while North America may experience a moderate decline in production, as measured by national output. That said, the US is among the world’s largest spenders on clean energy, bolstered by provisions in the recent Inflation Reduction Act–which creates numerous investment opportunities. 

Implications for Multi-Asset Investors

The four secular forces we’ve described will likely create headwinds and opportunities as they reshape the global economic and investing landscape and have meaningful bearing on inflation, growth, and market volatility. That could have significant implications for asset-class return patterns and interrelationships as well as greater returns dispersion across the global markets.

In most environments, there’s usually potential for risk assets to deliver positive real returns over time, especially if positioning remains broad. Stocks serve as a multi-asset strategy’s anchor position for growth, and firms that deliver sustainable earnings growth should be rewarded. In our view, many of these will be US-based companies, and the role of US stocks in multi-asset strategies’ equity allocations shouldn’t be underestimated.

Of course risk assets like equities or high yield credit should be accompanied by diversifiers and other return sources that can adapt as conditions change. For example, with yields likely to stay higher for longer, bonds are a strong income source and diversifier. As always, multi-asset investors should stand ready to refine the mix as conditions continue to evolve. 

For more detail on the themes outlined in this blog, please see the white paper Investing in a Post Global World, produced by AB’s Institutional Solutions Team.
*BDO USA Manufacturing CFO Outlook Survey, 2021

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to change over time.

Investment involves risk. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This article is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor's personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer of solicitation for the purchase or sale of, any financial instrument, product or service sponsored by AllianceBernstein or its affiliates. This presentation is issued by AllianceBernstein Hong Kong Limited (聯博香港有限公司) and has not been reviewed by the Securities and Futures Commission.


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