More value for your money
In recent years, the success of the US equity market has been such that it’s become known as ‘US exceptionalism’.
By Gerrit Smit
Partner - Head of Equity Management | Portfolio Manager
Gerrit is Head of the Equity Management team, he has overall responsibility for the business unit, along with its Portfolio Management and Equity Research functions.
This is no coincidence explains Gerrit Smit. America is a powerhouse economy while its listed companies benefit from a host of structural advantages that simply don’t exist elsewhere.
The US is, unassailably, the world’s largest and most liquid capital market. With a stock market capitalisation of $55.2trn, the US constitutes 67% of the MSCI AC World Index.
The US is also home to the world’s largest bond market. In 2024 alone, it enabled $8.8trn of borrowing to find investors all around the world.
The US also has the most powerful central bank in its corner, underpinned by the US dollar, the strongest, and least volatile of global currencies.
Meanwhile, the ramping up of US oil and natural gas production made the US a net energy exporter by 2019, and the world’s largest oil producer by 2022, adding to its competitive edge.
Alongside this, the sheer scale of America’s internal market means that US companies account for 69% of the $7.2trn US manufactured goods market – the largest single market in the world.
Cultural differences
The US has always been a land of immigrants. Immigrants have a proclivity for hard work, innovation and a shared determination to succeed in their new country.
Coupled with the ready availability of capital, and the enduring strength of US investment banks, this has created the culture of risk-taking and entrepreneurialism that lies at the heart of the ‘American dream’.
Indeed, the belief that anyone who ‘works hard’ can get rich in America has become self-sustaining, creating a unique ‘can-do’ culture that permeates every strata of the economy.
This cultural differentiator accounts for both US per capita labour productivity that’s 20% higher than anywhere else in the G7, and why US companies demonstrate a level of innovation and remorseless, R&D-driven, technological advances not seen anywhere else in the world.
Years ahead
US companies continue to lead the field in electronic engineering and key technologies such as the cloud, enterprise software, electric vehicles, AI and producing the semiconductors needed to drive the Fourth Industrial Revolution (or 4IR).
Contrast this to the UK, which conspicuously lacks any major tech names and which continues to see its entrepreneurs and wealth creators departing to list their companies in the US, or to Europe, which has gained a reputation for over-regulation and for imposing swingeing fines on global technology companies. Both naturally deter entrepreneurs.
Born advantages
America is a melting pot that still enjoys the strongest demographics of any developed nation. It’s still far ‘younger’ than Japan, Italy, Germany or the UK; something underpinned by its higher birth rates.
A vibrant, and growing, working-age population helps to boost productivity and drive demand while forestalling the greater welfare costs that attend older populations.
The US is also home to the world's elite business schools. This underpins the corporate market’s commitment to R&D at all levels, and to strong business management, while creating a virtuous circle that means the US has incredibly deep resources in terms of human capital.
The logical choice
Although sensible investors will seek to diversify across more than one country, US investment also gives access to overseas revenues. 28% of the S&P 500’s revenues (some $4.6trn in 2023) originate from overseas with around 15% derived from fast-growing emerging-market economies.
This means long-term investors can, logically, hold US-listed companies indefinitely, secure in the knowledge that they offer global exposure along with the best management and corporate governance on Earth.
This is not so elsewhere in the world.
The efficacy of US corporate management can be seen from the return on invested capital (ROIC) of US companies over the last 20 years. It stands at 15%, a full 50% more than the 10% delivered by European companies over the same time frame.
This has translated into powerful US index performance. Over the last decade, the S&P 500 Index has delivered an average annual return of 13%, more than twice the return delivered by the rest of the world’s equity markets over the same period (see the table below).
Proof of the pudding
The Global Best Ideas Equity Fund operates a global portfolio of long-term ‘quality-growth’ stocks.
Historic annual returns on the S&P 500 Index vs the MSCI ex US index | |||
|---|---|---|---|
Time frame | |||
10 years | 20 years | 25 years | |
S&P 500 Index | 13% pa | 10% pa | 8% pa |
MSCI ex US Index | 6% pa | 6% pa | 5% pa |
Source: Stoneahge Fleming, 4 December 2024 | |||
Despite our global opportunity set, historically, over 80% of the portfolio has been invested in US stocks. This reflects the fact that the US equity market remains the home of more quality-growth stocks than any other market in the world.
The US is destined to remain the centre of global technological innovation, alongside this, the strength of its capital markets, its global reach, economic stability, and the quality of its company management continue to make US equities a compelling choice for investors.
1 Source: Siblis Research.
2 Source: MSCI.
3 Source: SIFMA.
4 Source: US Energy Information Administration.
5 Source: CPA.
6 Source: Visual Capitalist.
7 Source: Brookings Institution.
8 Source: Visual Capitalist/Goldman Sachs Global Investment Research data.
9 Source: Stonehage Fleming December 2024.
Photo courtesy of Thomas Habr.