White Paper Authored by Julien Frazzo, Beacon Pointe Advisors Deputy Chief Investment Officer

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“It’s never paid to bet against America.” – Warren Buffett

Executive Summary

• Let’s cut to the chase. The U.S. is the best place to invest, period.
• The U.S. is where entrepreneurs and innovation get funded. The ‘American Dream’ is very much alive.
• EAFE (Europe, Australasia, and the Far East) may no longer add much, if any, to U.S. equity portfolios with correlations on the rise.
• EM (Emerging Markets) may continue to offer some diversification benefit.
• The allocation to U.S. equities to maximize risk-adjusted returns has been creeping up towards 100%. On a long-enough horizon, “It’s never paid to bet against America.”
• I revisit the two reasons commonly cited to make the case for owning non-U.S. equities, relative valuations, and diversification benefit.
• I also make the case in ten points about why the U.S. is different.
• Geography, military, democracy, the rule of law, and the U.S. Dollar are the fundamental bases to a stable environment with the world reserve currency special privileges.
• Demography, education, language, cultural influence, and free enterprise add to the secret sauce.

American exceptionalism is the belief that the U.S. is inherently different from other nations, often seen as unique or exemplary. This concept is rooted in several key ideas. The U.S. was founded on ideals such as liberty, egalitarianism, individualism, republicanism, democracy, and laissez-faire economics. The country’s history, including the American Revolution and its expansion across the continent, contributes to its unique mission and role in the world. The U.S. has a significant cultural impact globally, from entertainment to technology, reinforcing its exceptional status. Proponents argue that the U.S. has a special role in promoting democracy and freedom worldwide. Critics, however, argue that this belief can lead to a sense of superiority and justify interventionist policies. Let’s not talk politics. My focus here is the U.S. exceptionalism applied to the world of finance and investing.

U.S. equities account for approximately 64% of global equity markets, with EAFE and EM representing ~29% and ~7%, respectively. Are allocations to non-U.S. equities necessary to capture the entire global equity opportunity set and improve the efficiency of portfolios? You will often hear two reasons for owning non-U.S. equities. First because they are cheaper. Second, because in modern portfolio theory, they provide diversification benefit to your portfolio.

Why Own Non-U.S. Equities?

What does it actually mean to own international stocks vs. U.S. ones? It is very much down to the location of the headquarters and primary listing (NYSE, Nasdaq, London, Hong Kong, etc.). Large Cap companies are global businesses regardless of where they are headquartered. Take Apple for instance. Only 40% of Apple revenues are derived from the U.S. market. Investors get indirect international exposure by investing in U.S. listed companies. As much as 41% of S&P 500 companies’ revenues are derived from foreign countries.

Revenue Exposure vs. Country of Listing

 

 

 

 

 

 

 

 

 

 

 

So why does it matter so much if a company is French, Chinese, or American? In the United States, public companies are run for profit, for shareholders. In other parts of the world, they are run for shareholders but for other stakeholders, as well. For example, “codetermination in Germany is a concept that involves the right of workers to participate in management of the companies they work for. Known as Mitbestimmung, the modern law on codetermination is found principally in the Mitbestimmungsgesetz of 1976. The law allows workers to elect representatives (usually trade union representatives) for almost half of the supervisory board of directors.”[1] The concepts of shareholders and stakeholders are crucial in understanding corporate governance, and they can vary significantly in non-U.S. companies.

Shareholders are individuals or entities that own shares in a company and their primary concern is the return on their investment, which comes from distributions (dividends and share buy-backs) and stock price appreciation. Stakeholders include anyone who has an interest in the company’s success for reasons beyond stock performance. This group can include employees, customers, suppliers, creditors, and the local community. Their interests are broader and can include job security, product quality, ethical business practices, and environmental impact.

In non-U.S. companies, the balance between shareholders and stakeholders can differ due to varying corporate governance models and cultural factors. Many European countries, such as Germany and the Netherlands, follow a stakeholder-oriented model. Companies often have two-tier board systems, including supervisory boards that represent various stakeholder groups, including employees. In countries like Japan, the concept of “keiretsu” (a network of interlinked businesses) emphasizes long-term relationships and mutual support among stakeholders. This approach often prioritizes employee welfare and supplier relationships over short-term shareholder profits.

This is one of the reasons why international equities typically trade at a discount to U.S. equities. The current discount of -42% is close to two standard deviations away from the historical average of -14.1%. Valuations clearly favor non-U.S. equities which are trading at extreme standard deviation to historical average. Valuations are a discounting mechanism of future growth, so maybe they are trying to tell us something…

Non-U.S. Stocks are Cheaper. Is This for a Reason? MSCI All Country Ex-U.S. Price to Earnings Discount vs. S&P 500

 

 

 

 

 

 

 

 

 

 

 

 

The U.S. is where innovation gets funded. How many top global businesses of the last 30 years have emerged from Europe or Asia? Just look at the composition of the MSCI ACWI Index, the global equities benchmark. 17 of the top 20 companies are American, with the first foreign one, Taiwan Semiconductor, coming in 10^th position with a less than 1% weight. The compositions of the major world equity indices are just very different today versus 30 years ago. There is a lot more exposure to the growth sectors (Information Technology, in particular) today in the S&P 500 vs. EAFE or EM and I don’t see the trend reversing.

Sector Breakdown Comparison: S&P 500, EAFE and EM

 

 

 

 

 

 

 

 

 

The Global Industry Classification Standard (GICS) divides the market into 11 sectors, which can be categorized into Growth and Value based on their performance characteristics. The growth sectors are Information Technology, Consumer Discretionary, Communication Services and Healthcare. These sectors tend to have higher growth rates and are more volatile. They account for ~62% of the S&P 500. Value sectors are Financials, Utilities, Energy, Consumer Staples, Industrials, Materials and Real Estate. Value sectors generally have more stable earnings and dividends but less growth.

The U.S. market is heavily weighted towards technology companies, which have been significant drivers of growth and innovation. In contrast, EAFE has a higher concentration of traditional industries like financials and industrials. This explains the earnings growth differential between the U.S. and international equities. And the earnings growth differential helps explain the valuation gap between U.S. and international equities. U.S. companies have just done a much better job at growing earnings than their European or Asian counterparts.

Earnings Growth by Region (U.S., EAFE and EM), Rebased

 

 

 

 

 

 

 

 

 

 

When was the last time that EAFE meaningfully outperformed the U.S.? A long, long time ago. You need to go back to the post dot.com bubble bursting (very much a U.S. bubble) to see EAFE outperform over a 7-year period. It may happen again, but as you can see, there is more grey (U.S. outperformance) than orange (EAFE outperformance) in this graph below.

 

MSCI EAFE and MSCI USA Relative Performance

 

 

 

 

 

 

 

 

 

The conditions that led to this outperformance are unlikely to return for several reasons. The U.S. economy has shown more robust and consistent growth compared to many EAFE countries. The Maastricht Treaty of 1992 set a 3% limit on government deficits as a reference value for European Union (EU) member states. This compares to a U.S. government that is not shy with running higher deficits to stimulate growth. Over the past decade, the U.S. government deficit as a percentage of GDP has been around 5.6% of GDP.

Finally, The Federal Reserve’s monetary policy has been more aggressive in supporting economic growth and stabilizing markets. In contrast, the European Central Bank and the Bank of Japan have faced more challenges in implementing effective monetary policies.

Where is the Diversification Benefit When You Need It?

International stocks do not necessarily help when you need them the most. In fact, quite the opposite during the Great Financial Crisis (“GFC”). The GFC was very much a U.S.-led crisis where EM and EAFE did not provide the diversification benefit one would have hoped. The maximum drawdown for the S&P 500 was 57.8% from October 2007 to March 2009 versus 60.4% during the same period for EAFE and 65.3% for EM.

More recently, during the COVID-19 Pandemic, the S&P 500’s drawdown was around 34%, whereas EAFE and EM saw drawdowns of about 38% and 42%, respectively.

Summary of Average Drawdowns for the S&P 500, EAFE, and EM since 1990

 

 

 

 

 

 

There is an explanation for this. When things go bad, investors want to own what feels safe and that means U.S. Large Cap equities. Not Small Caps (more fragile), not EM, not even EAFE. We feel safer owning the blue-chip names that we know. They have the best balance sheets and credit ratings, they are extremely well managed, they are shareholder friendly, and they sell products that we own. Why not EAFE and EM Large Caps then? Because the large owners/traders are mostly raised and based in America. The ownership of global equities is highly concentrated among a few major financial institutions, all U.S. headquartered. The portfolio managers at the largest asset managers, such as BlackRock, Vanguard, and State Street, collectively control a significant portion of the world’s equities. This is human nature applied to financial markets. When in doubt, we stay close to home.

The home bias effect in financial markets is a well-documented phenomenon where investors prefer to invest in domestic equities rather than diversifying globally. Numerous studies have shown that investors tend to allocate a disproportionate amount of their portfolios to domestic assets. For example, U.S. investors typically allocate about 90% of their equity investments to U.S. markets, even though U.S. equities represent roughly 65% of the global market capitalization.

Home bias is often driven by familiarity and comfort with domestic markets. Investors feel more confident investing in companies and markets they know well, which can lead to a preference for domestic over foreign investments. Historically, higher transaction costs and barriers to entry in foreign markets have contributed to home bias. Although these barriers have decreased with the advent of global investment vehicles like ETFs, the bias persists. Investors may perceive they have better information about domestic markets compared to foreign ones. This perceived information advantage can lead to a preference for domestic investments. Concerns about currency fluctuations can also contribute to home bias. Investors might avoid foreign investments to mitigate the risk associated with currency exchange rates. Even professional investors, such as mutual fund managers, exhibit home bias. Studies have shown that mutual funds often overweight stocks from their managers’ home states.

Has diversification worked going back, say, 40 years? The graph and table below show the benefit of mixing some EAFE to a U.S. portfolio over the 1970-2019 period. A CFA Institute study on this matter (International Equities: Diversification and Its Discontents, By Ford Donohue, CFA gives us some answers. You can see in the table that although the addition of 20% to 40% of EAFE equities to the portfolio did not improve the returns, it did lower the volatility, which means that it did slightly improve the amount of reward (return) received per unit of risk (volatility) taken. That said, the improvement is marginal with volatility coming down by less than 100 basis points from 15.1% at 100% U.S. equities to 14.3% with 40% in EAFE.

Model Portfolios, January 1970 to June 2019, Rebalanced Monthly

 

 

 

 

 

 

 

 

Is there still a case to expect a better risk/reward going forward? I would argue that the world is very different now. The international share of S&P 500 revenues has increased by 50% from 26.8% in 1992 to as much as 40% today. Up to the end of the twentieth century, Large Cap companies were rarely global leaders, and were more local leaders. European and U.S. firms/sector breakdowns were relatively similar. Today most of the global growth leaders are U.S.-based (Amazon, Apple, Alphabet, Nvidia, Meta, Microsoft, etc.). The U.S. has much more growth because of the composition of the index. It goes a long way into explaining U.S. exceptionalism.

Percentage of International Revenue in S&P 500 Companies, 1991 – Present

 

 

 

 

 

 

 

 

 

 

 

 

I do not believe that EAFE adds much to the risk/reward because it is too correlated to the U.S. If you believe it will be less correlated in the future, then there is a case to own, but my sentiments do not fall into that camp. The following chart visualizes monthly rolling 20-year periods between January 1970 and June 2019. It shows the percentage a global equity portfolio would have had to allocate to U.S. stocks to maximize returns.

Percent of Global Equity Portfolio Allocated to US Equities to Maximize Returns, Rolling 20-Year Data, Rebalanced Monthly

 

 

 

 

 

 

 

 

 

 

 

This graph shows how much should have been allocated to U.S. equities to maximize risk-adjusted returns.

Percent of Global Equity Portfolio Allocated to US Equities to Maximize Risk-Adjusted Returns, Rolling 20-Year Data, Rebalanced Monthly

 

 

 

 

 

 

 

 

 

 

 

The allocation to U.S. equities to maximize risk-adjusted returns has been creeping up towards 100%. This means that not only have EAFE stocks lagged their U.S. counterparts over the last several decades, but their diversification benefits have also deteriorated because the correlations between the U.S. and EAFE have steadily increased over time.

Three-year Rolling Correlation Between S&P 500 and EAFE

 

 

 

 

 

 

 

 

 

 

There is a stronger case to be made about owning EM for diversification purposes. EM is less correlated to U.S. equities, as illustrated by the graph below. While EAFE is showing a correlation factor that fluctuates between 0.8 and 0.9 in the last two decades, EM has been much less correlated within a 0.5 to 0.8 range. It makes sense. Emerging markets often have different economic structures and are at different stages of development compared to developed markets like those in the EAFE index. This leads to different growth drivers and economic cycles. EM economies are also more influenced by local factors such as political instability and domestic policies, which can differ significantly from the factors affecting developed markets. Finally, the sector composition of EM indices often differs from that of developed markets. For example, EM indices may have a higher weighting in sectors like Commodities and Financials.

Rolling Three-Year Correlations Between the S&P 500 and EAFE/EM

 

 

 

 

 

 

 

 

 

But investing in EM means investing in companies that are headquartered in jurisdictions with more fraud, more political interference, less rule of law, and more of a stakeholder’s approach to running businesses. So, net/net, I prefer to own EM via U.S. headquartered companies doing business in EM and who have figured out a way to navigate less shareholder-friendly jurisdictions. Let them do the heavy lifting.

The table below confirms that looking back 30+ years, U.S. equities have offered the best risk-adjusted returns over the long term. Of course, there were periods of time where EFEA and EM outperformed. Time in the market helps smooth the compounding returns. After 20 years of compounding, the U.S. market is showing the best probability of outcomes with an 8.2% average (5.6% to 9.8% annualized return range) and 1.4% St. Dev., vs. 5.5% average (3.9% to 7.0% range) and 1.0% St. Dev. for EAFE and 7.9% average (5.3% to 11.5% range) for EM but with a 1.9% St. Dev.

Comparative Annualized Returns – U.S., EAFE and EM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Exceptionalism in 10 Points

1. Geography

America has been blessed with geographic advantages. Compared to other parts of the world, it has had generally peaceful relations with the two countries on its borders, Canada and Mexico, in addition to having two oceans, the Pacific to the West and the Atlantic to the East, helping to guard it from external threats.

America benefits from the Great Plains, the largest continuous mass of arable land in the world. The east coast of the U.S. has an extreme density of natural ports. The Mississippi River system is an unrivaled inland transportation network. And finally, the U.S. is the #1 oil producer in the world and a net exporter of petroleum since 2020.

Strategic Advantages:

• Canada: The longest international border in the world, providing a stable and friendly neighbor to the north. This border facilitates significant trade, with major crossings like Detroit-Windsor and Buffalo-Niagara Falls.
• Mexico: The southern border is crucial for trade, especially through the North American Free Trade Agreement (NAFTA) and its successor, the United States-Mexico-Canada Agreement (USMCA).
• Atlantic Ocean: Provides access to European and African markets, with major ports like New York, Miami, and Boston.
• Pacific Ocean: Key for trade with Asia, with significant ports in Los Angeles, San Francisco, and Seattle.
• Gulf of Mexico: Vital for oil and gas industries, with major ports in Houston and New Orleans.

These geographic features not only enhance trade routes but also offer natural defense barriers, making the U.S. strategically positioned for both economic and security advantages.

The U.S.-Canada Border Overlaid on Europe

 

 

 

 

 

 

 

 

 

One example of a developed country where poor geography has been a detriment to its growth is Japan. Japan has very few natural resources, which means it relies heavily on imports for energy, raw materials, and food. Approximately 73% of Japan is mountainous, which limits the amount of land available for agriculture and urban development. Japan is also prone to natural disasters such as earthquakes, tsunamis, and typhoons. Despite these geographic challenges, Japan has managed to become one of the world’s largest economies through technological innovation, industrialization, and a strong work ethic. However, its geography continues to pose significant challenges to sustained economic growth.

“Why Nations Fail” by Daron Acemoglu and James A. Robinson is an excellent reference for understanding how geography, among other factors, can influence a nation’s economic development. The book argues that political and economic institutions are the primary drivers of prosperity or poverty, but it also acknowledges the role of geography.

2. Military

The U.S. has significant military capabilities to protect and project power globally, defending its strategic interests. The U.S. spends significantly more on its military than any other country, with expenditures surpassing the next nine highest spenders combined. The U.S. maintains around 750 military bases in at least 80 countries, with the highest number of bases in Japan, Germany, and South Korea. Historically, many powerful nations have maintained strong military capabilities to protect their economic interests and ensure stability. A robust military can safeguard trade routes, deter potential threats, and provide a sense of security that fosters economic growth.

However, it is important to note that economic power alone can also be significant. Economic interdependence between countries can create a balance of power where military force is less relevant. For example, the economic ties between the U.S. and China create a situation where both countries are mutually dependent, reducing the likelihood of military conflict.

U.S. Military Bases Abroad, 2020

 

 

 

 

 

 

 

 

 

 

 

 

3. Democracy

The U.S. operates as a well-established democracy with a system of checks and balances, promoting stability and governance. Checks and balances are crucial for a healthy economy. They help ensure that no single entity or group can dominate economic policy or decision-making, which can lead to corruption, inefficiency, and economic instability.

Reasons why checks and balances are important:

• Preventing Abuse of Power: By distributing power among different branches of government and regulatory bodies, checks and balances help prevent any one group from having too much control over economic policies.
• Promoting Transparency and Accountability: When multiple entities are involved in economic decision-making, it encourages transparency and accountability, as actions and policies are subject to scrutiny and review.
• Encouraging Fair Competition: Checks and balances can help prevent monopolies and promote fair competition, which is essential for a dynamic and innovative economy.
• Ensuring Stability: By having mechanisms in place to review and adjust policies, checks and balances contribute to economic stability and can help mitigate the impact of economic shocks.
• Protecting Public Interest: They ensure that economic policies are made in the public interest, rather than serving the interests of a select few.

In Washington, D.C., the system of checks and balances is a fundamental principle of the U.S. government, designed to ensure that no single branch becomes too powerful. Each branch has specific powers and responsibilities that enable it to check the others, ensuring a balance of power. For example, while the President can veto legislation, Congress can override a veto with a two-thirds majority in both houses. Similarly, while the President appoints judges, those appointments must be confirmed by the Senate.

Examples of Powers That Each Branch Has to Check the Other Two Branches

 

 

 

 

 

 

 

 

 

 

 

4. Rule of Law

In “Why Nations Fail,” Daron Acemoglu and James A. Robinson emphasize the importance of inclusive institutions, such as the rule of law and secure property rights, in fostering economic growth. Countries with strong rule of law and secure property rights create a stable environment where businesses and individuals can invest and innovate without fear of expropriation or unfair treatment. Conversely, countries that lack these institutions often struggle with economic stagnation and poverty.

The U.S. has a tested legal system based on English common law with relatively low levels of corruption compared to other nations. The U.S. legal system, rooted in English common law, has evolved over centuries to become a robust framework for justice. A few key points about it:

• Common Law Tradition: The U.S. legal system is based on common law, which relies on judicial precedents and case law. This means that past judicial decisions play a significant role in shaping future rulings.
• Federal and State Courts: The U.S. has a dual court system, with both federal and state courts. Federal courts handle cases involving federal law, while state courts deal with state laws.
• Checks and Balances: The judiciary is an independent branch of government, providing a check on the powers of the executive and legislative branches. This independence is crucial for maintaining the rule of law and protecting individual rights.
• Relatively Low Corruption: Compared to many other nations, the U.S. has relatively low levels of corruption. Transparency International’s Corruption Perceptions Index consistently ranks the U.S. as one of the less corrupt countries, though there is always room for improvement.
• Access to Justice: The U.S. legal system strives to provide access to justice for all citizens, though challenges remain, particularly regarding legal representation for low-income individuals.

Corruption Perception Index

 

 

 

 

 

 

 

 

 

 

5. The U.S. Dollar as the World’s Reserve Currency

The U.S. Dollar (USD) became the world’s primary reserve currency for several key reasons. After World War II, the Bretton Woods Conference established the USD as the world’s reserve currency. This agreement pegged other currencies to the dollar, which was convertible to gold at $35 per ounce. The U.S. emerged from the war with the largest gold reserves, making the dollar a stable and reliable currency.

Fast forward to 2024 and the U.S. remains the world’s largest economy, providing a strong foundation for the dollar’s stability and reliability. The U.S. Treasury market is the largest and most liquid in the world, making it an attractive place for countries to hold their reserves. The USD is the most widely used currency for international trade. Many commodities, including oil, are priced in dollars, creating consistent global demand. The petrodollar system, where oil transactions are conducted in dollars, has further entrenched the dollar’s role in global finance.

These factors collectively ensure that the USD remains the world’s primary reserve currency, providing stability and liquidity to the global financial system. The USD’s status as the world’s primary reserve currency brings several economic advantages:

• Lower Borrowing Costs: The U.S. can borrow money at lower interest rates because of the high demand for dollars. This is because many countries and institutions hold large reserves of USD, which they use for international trade and financial transactions.
• Seigniorage: The U.S. benefits from seigniorage, which is the profit made from issuing currency. Essentially, the U.S. can print money at a low cost and use it to purchase goods and services, both domestically and internationally.
• Economic Stability: The demand for dollars helps stabilize the U.S. economy. During times of global economic uncertainty, investors often flock to the dollar as a safe haven, which can help mitigate economic shocks.
• Influence and Sanctions: The U.S. can use its currency as a tool of diplomacy and economic policy. For example, it can impose financial sanctions on other countries by restricting their access to the dollar.
• Liquidity: The widespread use of the dollar in global transactions provides liquidity, making it easier for U.S. firms to access capital and for financial assets to be priced more easily.

The dollar has functioned as the world’s dominant reserve currency since World War II. Today, central banks hold about 60% of their foreign exchange reserves in USD.

Currency Composition of Global Exchange Reserves, 1999-present, %

 

 

 

 

 

 

 

 

 

 

 

No other currency comes close. Historically, shifts from one dominant international currency to another occur over many decades. Observers have speculated whether changes in the global economy and geopolitics could cause a shift from the dollar to other currencies. Focus is centered on China’s economic rise and digital currencies. To date, there is no evidence of a shift away from the USD as the dominant reserve currency. There is no alternative to the USD.

Currency Composition of Global Exchange Reserves as of December 2022, USD Billions

 

 

 

 

 

 

 

 

 

6. Demography

Although the U.S. faces natality challenges, immigration helps offset these issues, and the American Dream remains a powerful draw. The U.S. has an estimated population of 335.9 million people as of 2024, making it the third most populous country in the world, after China and India. The population growth rate in the U.S. is 0.53% per year, which is lower than the global average growth rate of around 1.05%.

The U.S. has a positive net migration rate, contributing to its population growth, whereas many countries experience negative net migration. The U.S. does face natality challenges, such as declining birth rates, which can impact the workforce and economic growth. However, immigration plays a crucial role in mitigating these issues. Here are a few key points:

• Population Growth: Immigration helps sustain population growth, which is essential for a dynamic economy. Immigrants contribute to the labor force and help balance the age demographic.
• Economic Contributions: Immigrants often fill essential roles in various sectors, from technology and healthcare to agriculture and construction. Their contributions are vital to the U.S. economy.
• Cultural Diversity: Immigration enriches the cultural fabric of the U.S., fostering innovation and creativity. Diverse perspectives can lead to new ideas and solutions.
• The American Dream: The concept of the American Dream continues to attract people from around the world. The promise of opportunity, freedom, and a better life remains a powerful draw for many.
• Entrepreneurship: Immigrants are often highly entrepreneurial, starting businesses at higher rates than native-born citizens. These businesses create jobs and drive economic growth.

Foreign-Born Share of the Population by Region of Origin

 

 

 

 

 

 

 

 

The U.S. population pyramid shows a relatively balanced distribution across different age groups, which indicates a stable population structure. This balance supports a steady workforce and economic growth. The population pyramids of the U.S and Japan reveal significant differences in their demographic structures. The U.S. may focus on supporting a growing and diverse workforce, while Japan faces challenges related to an aging population and a shrinking labor force.

Population Pyramids for the U.S. and Japan, 2020

 

 

 

 

 

 

 

 

 

The U.S. has strongly positive net migration and positive but decelerating natural population growth, resulting in net population growth. Germany has negative natural population growth and positive net migration, resulting in net population growth. Japan has very negative natural population growth and modestly positive net migration, resulting in net population decline.

Net Population Growth: Comparing US, Germany, and Japan

 

 

 

 

 

 

 

 

 

 

7. Education

According to Arnaud Chevalier, “In knowledge-based economies, attracting and retaining international students can help expand the skilled workforce. Empirical evidence suggests that open migration policies and labor markets, whereby students can remain in the host country post-study, as well as good quality higher education institutions are crucial for successfully attracting international students. Student migration can positively affect economic growth in both sending and receiving countries, even though migrants themselves reap most of the gains, mainly through higher earnings.”[2]

The U.S. is home to many prestigious educational institutions that attract students and scholars from around the world. Here are a few highlights:

• Ivy League Schools: Institutions like Harvard, Yale, Princeton, and Columbia are renowned for their academic excellence and rigorous admissions standards.
• Top Public Universities: Universities such as the University of California, Berkeley, and the University of Michigan offer world-class education and research opportunities.
• STEM Excellence: MIT, Caltech, and Stanford are leaders in science, technology, engineering, and mathematics (STEM) fields, driving innovation and technological advancements.
• Diverse Programs: U.S. universities offer a wide range of programs and specializations, catering to various interests and career paths.
• Research Opportunities: Many U.S. institutions are at the forefront of research, providing students with opportunities to work on cutting-edge projects and collaborate with leading experts.
• Cultural Diversity: The diverse student body at U.S. universities fosters a rich cultural exchange, enhancing the educational experience.

These factors make the U.S. a top destination for international students seeking high-quality education and opportunities for personal and professional growth.

Global Market Share of Internationally Mobile Students for Leading Study Destinations

 

 

 

 

 

 

 

 

8. Language

English is the dominant global language, often serving as a lingua franca in international business, science, technology, and diplomacy. While Esperanto was designed to be an easy-to-learn, politically neutral language to foster international communication, it never gained the widespread adoption that English has achieved.

Here are a few reasons why English has become so dominant:

• Historical Influence: The British Empire’s global reach in the 19th and early 20th centuries spread English to many parts of the world.
• Economic Power: The economic influence of the United States in the 20th and 21st centuries has reinforced the use of English in global trade and finance.
• Cultural Impact: English-language media, including movies, music, and literature, has a significant global presence.
• Technological Leadership: Many of the world’s leading tech companies are based in English-speaking countries, and much of the internet’s content is in English.
• Educational Systems: English is often taught as a second language in schools around the world, further cementing its role as a global language.

Worldwide English Proficiency Levels by Nation, 2021

 

 

 

 

 

 

 

 

 

 

9. Cultural Influence

The U.S. has long been seen as a land of opportunity, largely due to its strong culture of innovation and entrepreneurship. This perception is supported by several factors:

• Diverse Economy: The U.S. has a highly diverse economy with opportunities across various sectors, from technology and finance to healthcare and entertainment.
• Access to Capital: There is significant access to venture capital and funding for startups, which fuels innovation and growth.
• Educational Institutions: The presence of world-renowned universities and research institutions fosters a culture of learning and innovation.
• Regulatory Environment: A relatively favorable regulatory environment for businesses encourages entrepreneurship.
• Cultural Attitude: There is a cultural attitude that celebrates risk-taking and rewards success, which is crucial for entrepreneurial ventures.

The U.S. is often regarded as the most innovative country in the world. This reputation is built on several key factors:

• Leading Tech Hubs: the Silicon Valley, New York, and Boston, among others, are global centers for technology and innovation.
• High R&D Investment: The U.S. invests heavily in research and development, both in the private sector and through government funding.
• Talent Pool: The country attracts top talent from around the world, contributing to a diverse and highly skilled workforce.
• Entrepreneurial Ecosystem: There is a robust support system for startups, including incubators, accelerators, and a network of experienced mentors.
• Intellectual Property Protection: Strong IP laws encourage innovation by protecting inventors’ rights.

World’s Most Innovative Countries, 2023 Ranking of the Global Innovation Index

 

 

 

 

 

 

 

 

The U.S. has a significant cultural influence on the world, often referred to as “Americanization.” This influence is evident in various aspects of global culture, including:

• Entertainment: American movies, music, and television shows are popular worldwide. Hollywood is a major global film industry, and American pop music often tops international charts.
• Fashion and Brands: American fashion trends and consumer brands, such as Nike, Apple, and Coca-Cola, are recognized and desired globally.
• Education: Many students from around the world aspire to study in American universities, which are renowned for their quality of education and research.
• Technology and Media: The U.S. is home to many leading technology companies, like Google, Facebook, and Microsoft, which shape global communication and information sharing.
• Language: English, largely due to American influence, has become a global lingua franca, used in international business, science, and diplomacy.

10. Free Enterprise

The U.S. is where ideas get funded, where you can try, fail, and try again, where companies are run for profit, mostly for shareholders (as opposed to other stakeholders).

Have you ever wondered if Steve Jobs could have created Apple if he was born in – for example – Naples, Italy? I recommend you watch this ~12 minute short-film (https://filmfreeway.com/935364) in Italian but with English subtitles) that illustrates the challenges young dreamers/entrepreneurs face in less business-friendly parts of the world.

The U.S. supports a robust free enterprise system where ideas are funded, companies focus on profit, and labor is qualified, productive, and flexible. Some key aspects that make the U.S. a powerhouse for innovation and business:

• Funding Opportunities: The U.S. has a well-developed venture capital ecosystem, making it easier for startups to secure funding. This is especially evident in tech hubs like Silicon Valley.
• Profit-Driven Companies: Many U.S. companies prioritize profitability, which drives efficiency and innovation. This focus can lead to rapid growth and market leadership.
• Skilled Labor Force: The U.S. workforce is known for its high level of education, productivity, and adaptability, which are crucial for maintaining a competitive edge in various industries.

Largest Companies in the World by Market Capitalization, May 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The World Top-20 Tech Companies by Market Cap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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[1] https://en.wikipedia.org/wiki/Codetermination_in_Germany#:~:text=Known%20as%20Mitbestimmung%2C%20the%20modern,the%20supervisory%20board%20of%20directors.

[2] Chevalier, A. Royal Holloway, University of London, UK, and IZA, Germany. I Z A World of Labor. https://wol.iza.org/articles/how-to-attract-foreign-students/long.

About the Author

Julien Frazzo is the Deputy Chief Investment Officer of Beacon Pointe Advisors and a member of the Beacon Pointe Investment Committee. Prior to joining Beacon Pointe, Julien served as Director of Equity Research at The Bahnsen Group. Julien is a seasoned investment professional with twenty-four years of experience, including fourteen years as a risk taker in alternative asset management, five years in investment banking, and five years in private wealth management. Julien began his career in the financial industry as an M&A banker and equity research analyst as part of Lehman Brothers analyst and associate programs. Julien transitioned to the buy-side of the industry in 2004 by joining Citadel as a Senior Analyst before being promoted to Managing Director of Citadel’s Principal Strategy. Julien subsequently served as a Portfolio Manager at several multi-billion-dollar boutique hedge funds before relocating his family to Southern California and transitioning to private wealth management in 2019. Julien earned a Master’s degree in Accounting and Finance and a Postgraduate degree in Corporate Finance, Financial Engineering, and Securities Law from the University of Paris Dauphine in Paris, France. A French native, Julien holds American and British citizenships and lives in Long Beach, California. Having worked in Paris, Amsterdam, London, Chicago, Monaco, and Newport Beach, Julien is a student of many cultures and brings a global understanding of investments to the table.

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