US exceptionalism has been a defining force in global markets in recent years. The United States has consistently delivered stronger economic growth and higher corporate profits than many other regions, underpinned by a unique mix of structural advantages – a relatively youthful and growing population shaped in large part by immigration, a flexible labour market and abundant natural resources – reinforced by a culture of innovation, openness and business-friendly regulation.
Together, these factors have created a positive feedback loop – capital has flowed into the US economy, supported investment, corporate profitability and, in recent years, a stronger currency, which in turn has attracted further global capital. Since the global financial crisis, this has also translated into sustained market leadership. The US now represents around 65% of global equity market capitalisation, far exceeding its share of global GDP.
Over time, this market dominance has narrowed to a handful of stocks. A small group of mega-cap technology companies – the so-called ‘Magnificent Seven’ – has driven much of the market’s returns, leaving the rest lagging behind. The largest ten stocks now account for more than 30% of the S&P 500 Index, an historically unusual level of concentration that has increased investors’ reliance on a small cohort of companies for performance.
Concentration tends to lead to small cap outperformance
Such prolonged and concentrated outperformance raises questions about what happens next. While America’s structural advantages may justify a premium rating, the valuation of the US equity market as a whole has become stretched. Large caps now trade at a significant premium to their own history and to other markets, while small and mid-cap stocks are valued at a meaningful discount.
History consistently demonstrates* that periods of unusually strong returns and elevated valuations – even when underpinned by solid fundamentals – are often followed by ‘mean reversion’, where prices gradually return towards long-term averages. This implies lower future, long-term returns from large cap US equities, and especially from those stocks that have led the market higher. By contrast, in prior periods of extreme concentration, US smaller companies have gone on to outperform1 for several years when market leadership eventually broadens out.
Tailwinds becoming headwinds
Meanwhile, some of the structural tailwinds that have supported US market leadership – notably immigration-driven demographics and openness to global trade – appear to be moderating. If these trends persist, they could reshape the long-term investment landscape, reinforcing the case for a broad market rotation. Against this backdrop, investors may wish to look beyond the familiar stocks that dominate the US market index.
Time for JUSC to shine?
Conditions appear increasingly supportive of a shift towards a wider range of American businesses – those operating beyond the market’s narrow, high-valuation frontier. JPMorgan US Smaller Companies Investment Trust (JUSC) is well positioned for this adjustment. The Trust offers diversified exposure to high-quality businesses that should benefit if market leadership broadens and investor attention returns to fundamentals. Indeed, the JUSC portfolio is populated with many businesses that demonstrate how US industrial leadership extends well beyond technology, as the stock examples below illustrate.
MSA Safety
MSA Safety* is a high-quality industrial business which specialises in safety equipment and gas-detection systems. It operates in a concentrated market with strong pricing power and where the cost of switching to an alternative provider is high. The portfolio managers view characteristics like this as indicative of quality because they underpin attractive margins and high returns on capital.
Growth in recent years has been steady and looks set to continue, supported by tightening safety regulations and the company’s expansion into emerging markets, while the balance sheet remains robust. Its valuation sits at a modest premium to the market, but that’s justified by the reliability and durability of its earnings profile, making MSA Safety an excellent example of the type of consistent ‘compounder’ the team looks for.
WillScot Mobile Mini
WillScot Mobile Mini provides modular office units and portable storage solutions used across construction, infrastructure and industrial projects. The business was formed through the merger of WillScot and Mobile Mini in 2020, which brought together two specialists to create a larger company with a dominant market share and significant pricing leverage, giving it clear quality characteristics. As independent businesses, both were historically quite cyclical, but together they have transformed into a scalable, data-driven rental platform.
Growth is supported by steady demand for flexible space solutions in areas such as infrastructure renewal, domestic manufacturing and construction – all attractive and enduring investment themes in the US economy. Margins for the merged business have expanded impressively, and with further integration benefits and operational efficiencies still to come, the outlook for continued growth and value creation remains strong.
Bright Horizons
Bright Horizons runs childcare and early education centres, primarily through partnerships with large employers. These employer-sponsored arrangements create long-term, recurring revenues, underpinned by deep client relationships and high barriers to switching. The company also offers back-up and in-home care services, helping parents balance work and family responsibilities – a service increasingly valued by both employers and employees.
Growth has been steady, supported by long-term trends such as rising employment and greater demand for flexible childcare solutions, while the company maintains a strong balance sheet and benefits from dependable cash generation. Bright Horizons exemplifies the kind of resilient, people-focused business that can deliver consistent growth through a range of market conditions.
Conclusion
JUSC’s disciplined, quality-focused approach has delivered a strong long-term track record through changing market conditions. That same discipline now positions the Trust to benefit from a potential shift in market leadership – whether US exceptionalism continues to dominate or begins to evolve.
The perception implied by current valuations is that America’s economic strength stems almost entirely from its mega-cap technology companies. But JUSC’s portfolio demonstrates it’s much more than that. The portfolio managers talk about “investing in the heart of America” because that’s where the real story of US exceptionalism resides – in the depth and diversity of the nation’s broader corporate landscape, where ambitious, well-run businesses across a range of sectors continue to drive innovation, renewal and growth.
It’s been hard for that depth to shine through while market leadership has been dominated by a small group of large technology companies. But with valuations, earnings potential and market breadth all potentially turning more supportive, we believe the ingredients are now in place for a rewarding future for US smaller company investors.