After more than a decade of exceptional performance by US equities, global leader in systematic and quantitative investing Acadian Asset Management believes the tide has turned. The asset manager argues that the case for global diversification — once side-lined in the shadow of American market dominance — is now stronger than it has been in years. Slowing earnings growth, stretched valuations, a weakening dollar and reduced financial market integration all point to a world where US equities may no longer justify their outsized presence in global portfolios.
“For many years after the Global Financial Crisis, US equity markets enjoyed tailwinds that led asset owners to wave the white flag on global diversification,” says Acadian. “But these tailwinds have abated.”
Indeed, in the first half of 2025, non-US equities posted their strongest relative start to the year in decades, with several global markets outperforming the US. While the US was ranked the best-performing market consistently between 2010 and 2022, it had slipped to 11th place by May 2025. This rotation in performance leadership, Acadian notes, is not an anomaly but rather a return to the norm. “The prior run of US market dominance is the historical exception, not the rule,” the firm explains.
Diminished market integration and valuation concerns
One of Acadian’s key observations is the declining role of global risk factors in explaining returns across developed markets outside the US. “There are signs that financial market integration has weakened, reversing a decades-long trend,” the firm notes. Analysis of return drivers shows that the share of equity returns explained by global systemic factors has dropped significantly, particularly for small-cap stocks that are more domestically exposed.
This shift means that geographical diversification may once again deliver tangible benefits, especially for institutional investors seeking to reduce portfolio risk. “Decreased influence of global factors on returns leaves greater room for risk reduction from geographic diversification,” Acadian states.
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Valuation is another critical concern. According to the asset manager, US equities are currently trading at a forward earnings premium of nearly 50% compared to their developed-market peers. This premium has persisted despite a marked slowdown in earnings growth. Between 2023 and 2024, US large-cap stocks expanded their valuation multiples by 18% annually, while earnings grew just 5%. This is just half the rate seen during the frothy 2017 to 2021 period.
“US multiples have grown twice as fast as they did from 2017 to 2021, even though earnings growth has halved,” Acadian says. The divergence is more significant outside the Magnificent Seven tech giants, where earnings growth has been just 1.6% in the last two years, despite valuations continuing to climb.
Acadian cautions investors not to assume that the valuation gap is sustainable, particularly in the face of unexpected macro shocks or disappointing results from high-growth sectors like artificial intelligence. “A painful repricing could be triggered either by downside shocks to growth in the US or upside surprises elsewhere,” the asset manager warns.
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While some market participants justify high US valuations with optimistic forecasts around AI-driven productivity gains, Acadian says these assumptions deserve closer scrutiny. “Assumptions underpinning such forecasts should not be taken for granted,” Acadian says, adding that recent breakthroughs in large language models may erode the first-mover advantage of some US firms, undermining their capital return projections.
Dollar risks and global portfolio rebalancing
Currency movements are another reason Acadian urges caution toward US-heavy portfolios. After years of dollar strength that eroded returns on unhedged international assets, the greenback’s weakening in 2025 caught many investors off guard. However, the firm points out that the depreciation is modest in historical terms, with the US dollar still near 50-year highs on a real effective basis.
Given the current macro-political backdrop, Acadian argues that continued dollar weakness is plausible and could act as a powerful tailwind for non-US equities. The firm highlights two previous episodes — post-Plaza Accord in the late 1980s and post-dot-com crash in the early 2000s — where the dollar depreciated 3% to 4% per annum over several years. In both cases, international assets meaningfully outperformed.
“Still-elevated dollar levels argue for caution against equity positioning that implicitly assumes further dollar strength,” Acadian advises. Should the dollar weaken from here, non-US markets — particularly in Asia and Europe — could become significantly more attractive from a total-return perspective.
In a stylised framework modelling a global equity portfolio divided among US, developed markets ex-US, and emerging markets, Acadian finds that most investors are overweight the US based on the assumption of continued outperformance. As of May 2025, US stocks made up 64% of the MSCI All Country World Index (ACWI). However, the firm calculates that an investor who expects equal returns across regions should only allocate 40% to US equities.
“In fact, an investor would underweight the US market by 8% or more if they foresaw US outperformance of anything less than 2% per year,” the firm explains. If market integration continues to decline, the underweight would grow even more pronounced.
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Acadian believes this shows that a reallocation away from the US does not require a pessimistic view of American equities — only a more realistic assessment of expected returns, earnings growth and valuation risk.
“There is no need to assume an imminent crash. The math simply shows that the bar for continued US dominance is higher than many investors might assume.”
Overall, Acadian advises investors to reassess their default assumptions, particularly the heavy US weighting baked into most global equity indices. “It does not take an extremely pessimistic view about US stocks’ relative prospects to justify a benchmark-relative tilt towards other markets,” the asset manager says.
A world of diminishing market correlation, narrowing valuation spreads and shifting economic growth drivers presents an opportunity for asset owners to diversify more deliberately. The recent relative strength in non-US equities, which has so far not been matched by valuation premiums, suggests room for further upside.
Moreover, with earnings upgrades outpacing expectations in several non-US markets and valuations still roughly 10% below long-term medians, the asset manager sees an attractive entry point for long-term investors.
“Given the combination of these trends, investors should not reflexively accept US-heavy benchmark allocations as their default positioning. Instead, allocators should consider more balanced exposure to markets around the globe,” Acadian says.
