<p>Narrowing the gap: U.S. exceptionalism and developed markets</p>

U.S. financial markets’ premium valuations are often called “U.S. exceptionalism.”

U.S. GDP growth, high corporate profits and an appreciating currency have long drawn more global capital flows than other economies attract.

Other developed markets with less compelling fundamentals are improving.

European policy shifts and corporate reforms in Japan are addressing some legacy weaknesses, but it’s not yet certain whether changes are more structural or cyclical.

A relative shift in economies’ outlooks could spur asset allocation rebalancing globally.

It is unlikely that another country or region could assume the U.S.’s dominant position. However, even modest economic convergence could create a world of markets with no single center of gravity.

Passive strategies are directly exposed to the U.S. market overweight.

Greater diversification, and active management across global benchmarks, would provide more dynamic allocation across currencies, market sectors, countries and firms.