Europe’s largest asset manager, Amundi Asset Management, has produced research showing why U.S. stocks have outperformed the world, and why that outperformance may continue.
Admittedly written by two from its Boston office — Craig Sterling, its head of U.S. equity research, and Marco Pirondini, head of U.S. equities — Amundi made a distinction between the U.S. stock market, which is a play on many of the world’s most profitable companies, and the U.S. economy.
The S&P 500 has outperformed the rest of the developed world, measured by the MSCI Europe, Australasia and Far East index, in 19 out of the last 30 years, and with cumulative returns of 1574% versus 235%. That is no accident, as U.S. companies have higher profit margins and consistently topped their cost of capital. While U.S. valuations aren’t cheap, investors get what they pay for, with a better cash flow return on investment.
Much of the outperformance stems from the U.S. dominance in technology, which the Amundi pair expects to continue. “The combination of world-class universities that develop technology and serve as launching pads for startups to commercialize it, a well-developed venture capital industry, and a cultural willingness to take risk make it difficult for other regions of the world to surpass the U.S.,” the pair says, with only China proving to be a viable global competitor.
Besides tech, monetary and fiscal policies that put greater emphasis on the stock market are an advantage to U.S. equities, as are bigger threats of shareholder activism and merger-and-acquisition activity. Lower taxes and a flexible labor market also provide a boost to U.S. markets, the pair says.
Uniquely, the pair supports the corporate culture of stock buybacks, which are far less prevalent outside the U.S. “A key advantage of share repurchases is that they enable the recycling of capital throughout the economy, so capital may end up in the most innovative hands and not trapped inside of less efficient, more mature companies,” Amundi says.