Somewhere on a late spring afternoon in Greenwich, Connecticut, as the scent of freshly cut lawns lingers in the air, a portfolio manager pours over a quarterly letter to her clients. The numbers flash across her screen, echoing a pattern that has persisted for over a decade—US equities continue to dominate. Across the Atlantic, a pension fund director in Geneva scans a similar report, this time with a sigh. The story is the same, only the perspective differs. Since the 2008 financial crisis, American markets have outperformed their developed peers in Europe and Asia by a margin so consistent, it almost seems inevitable. But is it?
When Antti Ilmanen and Thomas Maloney at AQR Capital Management published their 2025 findings on the structural forces behind this extraordinary divergence, they quietly reshaped the ongoing debate in high-net-worth investing circles. Over the past 35 years, they found, US stocks beat their non-US developed counterparts by an average of 4.7% annually. But the driver wasn’t primarily stronger corporate performance or superior innovation—it was valuation expansion, and this has profound implications for anyone managing significant long-term capital today.
Consider the case of Richard, a retired tech executive in Palo Alto who has spent the last 15 years steadily shifting his family trust’s equity exposure towards US mega-caps. His reasoning was simple: American companies like Apple, Microsoft, and Nvidia were changing the world, and their earnings reflected it. But had he paused to examine the roots of their return dominance, he might have discovered a more fragile foundation. According to AQR, nearly 3.8% of the annual outperformance is attributable not to stronger earnings or dividends, but to investors assigning a growing premium to US equities, as reflected in expanding price-to-earnings multiples. In contrast, real earnings growth only accounted for 1.1% of the advantage.
This insight should give pause to those who equate past returns with future security. High-net-worth individuals, family offices, and institutional stewards are not merely chasing performance—they are custodians of generational wealth. And valuation-based gains, while lucrative in the short run, rarely provide enduring protection in downturns. If the American stock market is indeed priced for perfection, even a modest disappointment could jolt portfolios that have grown complacent in their domestic bias.
Luxury asset managers from London to Los Angeles are increasingly aware of this imbalance. After all, wealth management isn’t just about maximizing returns—it’s about managing expectations and risk across decades, often through geopolitical shifts, currency cycles, and policy changes. And in an environment where dividend yields in the US have trailed those in Europe and Japan, and where real interest rates have remained more favorable abroad, it’s hard to ignore the subtle financial gravity pulling in the opposite direction.
Take Gabriela, a Swiss private banker whose clients include shipping magnates from Monaco and venture capitalists from Berlin. In the early 2010s, she watched many of her clients pivot heavily into the US equity market, spurred on by its rebound from the global financial crisis. For a time, the decision looked prophetic. But as she explains over a coffee on Zurich’s Bahnhofstrasse, the current sentiment is shifting. “There’s a sense that we’ve ridden the wave, but now it’s a matter of balancing prudence with opportunity,” she says. Her team is exploring higher dividend-yielding European telecoms, undervalued Japanese manufacturers, and even select Southeast Asian growth equities, often with less headline glamour but stronger forward return expectations.
One must not forget the psychological comfort of investing in what one knows. The cultural prominence of Silicon Valley, the perceived political stability of the US, and the sheer consumer influence of American brands make domestic equities feel like a safer bet. But safety, in finance, is rarely about familiarity. For instance, during the dot-com bust and the 2008 crisis, it was precisely the over-concentration in domestic tech that punished US-heavy portfolios the most.
And herein lies the conundrum for today’s affluent investor: while US equities have delivered handsomely, the mechanics behind that delivery suggest that the easy money may already be on the table. Growth has not been evenly distributed. A handful of technology firms account for a disproportionate share of index gains, while much of the broader market struggles under the weight of interest rate uncertainty and inflation pressures. From a valuation perspective, the cyclically adjusted price/earnings ratio—popularized by Nobel laureate Robert Shiller—suggests that US equities are priced at historically elevated levels, especially compared to European or Asian markets.
It’s not merely an academic concern. Asset allocation decisions made in family boardrooms, private wealth dinners, and endowment committee meetings today will reverberate for decades. And when those discussions lean too heavily on past performance without decomposing its roots, they risk underappreciating the subtle shifts in the global financial architecture. For instance, younger economies like India and Indonesia, while still developing, are experiencing demographic trends and consumption growth trajectories that mirror China two decades ago. At the same time, Europe’s green energy push and industrial policy renaissance could spark a multi-year investment cycle, even if it doesn’t command the same media spotlight as Silicon Valley’s latest unicorn.
Behind every rebalancing decision is a lived story. In Boston, a university endowment manager recently described the tension she feels every time her team considers trimming its US equity exposure. “There’s always the fear that you’re stepping away from a sure thing,” she said, “but when you strip away the glamour, what’s left is the math.” And the math, as AQR’s research lays bare, points toward a future where valuation contraction—or simply plateauing—could erode the return advantage that many have come to take for granted.
For many families, this realization doesn’t mean abandoning the US market. Rather, it invites a more nuanced rethinking. Alternative asset classes like private equity, global infrastructure, and international real estate are seeing renewed interest. There’s also a shift towards active management in non-US markets, where pricing inefficiencies and political complexities may offer a richer hunting ground for alpha. The key isn’t to flee, but to diversify intentionally.
At the heart of this conversation is a timeless principle: diversification isn’t about predicting which region will outperform next year—it’s about ensuring that no single misjudgment jeopardizes an entire financial legacy. And in an increasingly interconnected world, the sources of resilience are often found in the places we’ve neglected.
An elegant dinner in Manhattan’s Upper East Side might see guests comparing notes on hedge fund returns, but beneath the surface, the most insightful investors are pondering something quieter: whether the long, extraordinary run of US equities represents strength or simply a mirage of ever-expanding multiples. They’re not just chasing returns—they’re stewarding dynasties, preparing heirs, and asking questions that can’t be answered by the S&P 500 alone 📈
And that is where true financial sophistication begins—not in knowing what has performed well, but in understanding why, and what it might mean when the music slows. As every seasoned investor eventually learns, market narratives are like seasons. Some endure. Others fade. The key lies not in betting against the tide, but in knowing when to seek a different shore 🚤