Wide World of Growth
Investors often show a home country bias, tending to invest heavily within their own nations. Is there a broader world of growth to explore beyond U.S. borders?
Investors around the world typically display some amount of
home country bias, where they invest disproportionately in the country in which they live. This problem may be particularly acute for U.S. investors who could assume that opportunities for growth equities outside of the country are limited. Is there a wide world of growth beyond U.S. borders?
- The U.S. has been the epicenter of corporate growth and innovation for decades, making significant contributions to the personal computer, internet, smartphone, and potentially leading the world in artificial intelligence (AI) given its momentum in hardware and software development. Over the past 20 years, S&P 500 EPS has grown over 200%, more than double that of the MSCI All Country World ex-US Index as of December 2024. However, this does not mean that all great growth companies are based in the U.S. We believe there are a plethora of fast-growing international companies that many U.S. investors may be overlooking.
- As the chart above shows, there are nearly four times as many high-growth companies–defined as those with a two-year consensus sales growth exceeding 15% annually—trading outside the U.S. as there are within. As one might expect, non-US high-growth companies are predominantly found in the technology and healthcare sectors; however, there is also a meaningful representation in the industrials and materials sectors. While we continue to see potentially compelling opportunities within the U.S., valuations for non-U.S. high-growth stocks appear attractive, with a median price-to-earnings ratio 19% lower than U.S. high-growth companies.
- Given these findings and our research indicating that many high-quality growth companies trade beyond our borders, we believe investors may want to examine their allocations and consider searching for high-growth potential outside of the U.S.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of January 2025. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
Risk Disclosures: : Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Foreign securities and Emerging Markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility.
Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.
Companies involved in, or exposed to, AI-related businesses may have limited product lines, markets, financial resources or personnel as they face intense competition and potentially rapid product obsolescence, and many depend significantly on retaining and growing their consumer base. These companies may be substantially exposed to the market and business risks of other industries or sectors, and may be adversely affected by negative developments impacting those companies, industries or sectors, as well as by loss or impairment of intellectual property rights or misappropriation of their technology. Companies that utilize AI could face reputational harm, competitive harm, and legal liability, and/or an adverse effect on business operations as content, analyses, or recommendations that AI applications produce may be deficient, inaccurate, biased, misleading or incomplete, may lead to errors, and may be used in negligent or criminal ways. AI companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology.
Investing in innovation is not without risk and there is no guarantee that investments in research and development will result in a company gaining market share or achieving enhanced revenue. Companies exploring new technologies may face regulatory, political or legal challenges that may adversely impact their competitive positioning and financial prospects. Developing technologies to displace older technologies or create new markets may not in fact do so, and there may be sector-specific risks. There will be winners and losers that emerge, and investors need to conduct a significant amount of due diligence on individual companies to assess these risks and opportunities.
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