Investment Strategy Group
over the last four years,
we have been making the casethat US preeminence relative to other economies is the singlemost important factor underlying our core allocation toUS assets. As we began thinking about our
,we decided to revisit that call in light of the remarkableperformance of US assets since the trough of the ﬁnancial crisisin early 2009. The question now is: have the factors that ledto this performance changed?
The short answer is: yes, but for the better. USpreeminence is not only still intact, it rests on astronger foundation and is likely to be sustainedfor the foreseeable future. The past four yearshelped crystallize awareness of the key economic,institutional, human capital and geopoliticaladvantages the US enjoys over other economies.Meanwhile, persistent structural fault lines haveput key developed and emerging market countriesat a further disadvantage to the US.Of course, the US faces its own fault line: itsstill-problematic ﬁscal proﬁle. In this report, weevaluate the likelihood of a resolution.We also afﬁrm that there are intriguinginvestment opportunities outside the US. Fault linesin other countries are not fatal ﬂaws. We pointthem out so that investors are aware of them, andcan use them to allocate assets on a prudent andselective basis.Importantly, we encourage investors tolower their return expectations across all assetclasses over the next several years. We have, forthe ﬁrst time in our
series, issued ourreturn expectations for major asset classes forthe next ﬁve years. It is our hope that comparingexpected returns for these assets over the shortand intermediate term will help our clients betterbalance their return objectives with their risktolerances and investment horizons.