In the 30 years from the start of 1980 through the end of 2009, U.S. and European equity markets generated strikingly similar returns. During this period, the U.S.-based S&P 500 generated annualized total returns of 11.51%, while the MSCI Europe Local Currency Index produced 11.49% per year.

However, over the next 12 years, the U.S. market outperformed dramatically. From January 2010 through December 2021, the MSCI Europe experienced 7.6% annual returns, and while those for the S&P 500 SPX, +0.57% were nearly twice as high, at 15.1%.

Despite boisterous claims otherwise, we at Albert Bridge Capital contend that this strength in the U.S. market was not due to a “problem with Europe.”

Speaking as a born-and-raised American who spent 20 years in London analyzing American and European companies, we contend that European companies are just fine, and in most cases are as similarly well-managed, capitalistic, and operationally efficient as their U.S. counterparts. Indeed, in some cases, the Europeans are markedly better (think luxury goods).

Yet up until very recently, from the perspective of stock-market performance, the U.S. has been dominating.

We believe this was partly, if not mostly, led by a clustering effect of global technology companies on the West Coast, and specifically around Silicon Valley. In our view, this clustering was not the product of government policy, appetites for risk, or corporate governance. The reason was much less interesting; it was simply happenstance. 

Bill Hewlett and David Packard graduated from Stanford University and decided to start a company in a garage in nearby Palo Alto. Meanwhile, William Shockley left Bell Labs in New Jersey and moved to California. First to Cal Tech, then up to Mountain View to start his eponymous semiconductor lab. Why California? Because his mother lived there, and she was sick.

Shockley’s engineers then left to start Fairchild Semiconductor, which got the first big NASA contract post-Sputnik. One of those engineers was Gordon Moore, who then left Fairchild to start Intel. Fast forward 60 years, and Intel, Google, Facebook, Apple, Nvidia and Netflix are all within 40 miles of each other, attracting top talent from all over the world.

Sure, they didn’t all settle on London, Paris or Frankfurt, but they didn’t choose Chicago or New York either. This isn’t a U.S. vs Europe thing.

Furthermore, these tech winners and other growth stocks are a much larger portion of U.S. benchmark indexes (like the S&P 500 or Russell 1000 RUI, +0.63% ) than growth stocks are in Europe. Sure, there is the occasional ASML and SAP on the eastern side of the pond, but, broadly, European indexes like the MSCI Europe or Euro Stoxx SXXE, 0.80% tilt more toward value stocks and away from growth.

Source by: marketwatch