The Meb Faber Show - Better Investing AQR’s Antti Ilmanen – US Exceptionalism: Growth Story or Valuation Trap? | #607
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Nov 21, 2025 Antti Ilmanen, Global Co-head of the Portfolio Solutions Group at AQR Capital Management, delves into the intricacies of investment returns and the behavioral biases driving investor decisions. He emphasizes the need for humility in forecasting, contrasting institutional and retail behaviors, and highlighting the risks associated with high US valuations. Antti warns against past performance reliance and discusses the benefits of diversifiers and trend strategies in mitigating risks. His insights provide a fresh perspective on navigating the complexities of the current market.
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Objective Yields Vs Rear-View Extrapolation
- Investors form expectations from two lenses: objective yield-based measures and subjective rear-view extrapolation.
- Subjective expectations often extrapolate past returns and can be bullish when valuations are high.
US Outperformance Driven By Richening
- US outperformance since the GFC mostly came from rising valuations (richening) rather than superior earnings growth.
- Antti warns that the US now trades at nearly double valuations versus non-US markets, implying significant risk if growth expectations prove too optimistic.
Valuation Changes Drive Decadal Returns
- Ten-year US returns correlate strongly with decade-long valuation changes, far more than with earnings growth.
- Valuation shifts drive most decadal return variation, so starting valuation matters greatly.
