Part 2 of a multi-part research series from AQR: “Understanding Return Expectations” (downloadable at bottom of post with my highlights).

The research here focuses on the prolonged period of market outperformance of the US relative to non-US over the last 35 years, and makes the case that this is largely reflective of “richening relative valuations,” rather than solely being attributable to the underlying businesses.

Using AQR’s capital market assumptions as of December 2024, we calculate a growth edge of 2.2% p.a. for US equities to earn the same return as Non-US equities hedged to USD.

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We suspect that few investors appreciate how much of the past absolute and relative performance reflects repricing, which really should not be extrapolated—especially when today’s extreme valuations point the other way.

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