U.S. equities as measured by the S&P 500 posted a very strong year, in fact stronger than what most investors had anticipated coming into the year. The ‘risk on’ mantra held up. Low interest rates and positive earnings growth helped investors rationalize the 19x forward P/E price tag on the index. In a world where we’re still seeing negative interest rates on some $11T in debt, the U.S. bond market also was an attractive destination for investors.

However, as strong as these campaigns were, the U.S. wasn’t the best performing market in the year. As we discussed coming into the year, getting global with a portfolio appeared to be an idea that carried some weight. When looking outside the U.S. borders, markets across the globe came into 2017 a bit more attractively valued with strong catalysts to support them. This evidence ended up being the perceived driving force in 2017. Markets from Mexico to China and everywhere in between appeared to outpace the U.S. market. An investor who followed the evidence stood to benefit. Emerging markets posted their second consecutive year of outperformance relative to their developed market peers. For anyone who was concerned about inflation running rampant in the U.S. could have turned to the EM debt markets as well. As measured by the J.P. Morgan Local Currency Index, these bonds posted returns above 11.5% before December was up.

Read the full piece here.