| The “America First” trade that surged in the immediate aftermath of Donald Trump’s electoral victory is on display again this week, with banks and smaller companies pushing the stock market ever higher yesterday. Despite some recent monetary-related jitters, investors are continuing to bet that Trump’s policy agenda -- including de-regulation and moves to boost domestic business over foreign competitors -- will add fresh fuel to the long-standing outperformance of US equities over world markets. This deeply held investor conviction breathes fresh life into a controversial debate in the investment world: With American equities beating pretty much everything out there over the past decade and more, is there any actual point spreading your bets into other markets? Sure, diversification sounds wise in theory: Don’t put all your eggs in one basket. One bad wager can be offset by others that do well. And so on. But with the S&P 500 up a stonking 25% in 2024, any deviation from US stocks is leading to a world of pain for diversifiers. Owning international equities, for instance, would only give you a paltry gain of 3% this year, the biggest relative underperformance since 1997. Sinking money into fixed income can be equally punishing with a Bloomberg index for government and corporate bonds up a meagre 1.5%. Such a poor return versus the S&P 500 has only been seen in two separate years since at least 1976. Anyone following established diversification allocation methods — like the so-called 60/40 model or risk-parity — is also missing out. Still, the diversify-or-be-damned mantra continues to be recited on Wall Street. And to be fair, another streak of epic US stock gains looks like a long shot to many, given valuations appear stretched. And while stocks tend to go up over the long run, one does have to stomach painful drawdowns that can last for decades. “The allure of equities is undeniable; they have historically outpaced other major asset classes over extended periods,” said Michael Crook, chief investment officer at Mill Creek Capital Advisors. “However, the volatility inherent in the stock market, along with the possibility of enduring extended periods of stagnation or even loss, makes a compelling case for diversification.” —Lu Wang | 
