Like the buildup of lactic acid in your muscles after a strenuous workout, the underperformance of the Morgan Stanley Capital International All Country World index vs. the Standard & Poor's 500 (or any U.S. equity benchmark, for that matter) for the last several years has been building up to a painful point. This pain threshold has pushed investors to the limits of their global endurance resulting in what we call “ACWI fatigue.” ACWI fatigue is most acute with institutional investors who use the MSCI ACWI as their equity benchmark and, as a result, have a globally oriented equity portfolio.
Exhibit 1 demonstrates this fatigue. Since the Great Recession, the ACWI has underperformed the S&P 500 in six of eight years. The natural query that investors make is why construct their portfolios to match a global benchmark when the U.S. stock market performs so much better? The question seems all the more relevant in light of the extended underperformance of ACWI compared to the S&P 500.