That being said, we also believe that a reduction in the uncertainty caused by the pandemic and higher interest rates in 2022 should reduce the dispersion of valuations, which has increased in recent years. We believe this remains a key theme for the new year.
Entering 2022, as we show on page 10 of our new 1Q2022 Guide to the Markets, the Russell 1000 value index had a forward P/E ratio of 15.8 times compared to 30.6 times for the Russell 1000 growth, the widest disparity seen in over 20 years. Similarly, as we show on page 46 of the Guide, international equities at the end of 2021 were selling with a forward P/E ratio which was more than 30% lower than their U.S. counterparts and dividend yields which were more than twice as high.
Conversely, even as global central banks move towards tightening, real 10-year Treasury yields are at their lowest levels in decades, as shown on page 33, while credit spreads are almost all tighter than average, as displayed on page 37. Conversely, alternatives, as shown on page 58, continue to provide strong income streams in a low-rate environment.
All of this suggests that long-term investors may want to consider being a little overweight international equities, U.S. value stocks and alternatives relative to long-duration fixed income and U.S. growth stocks. However, more importantly, it speaks to a need to reconsider portfolio positioning entering the new year.
Sari and I survived my early driving lessons and, as we quietly toasted in the new year at home, we wished, like everyone else, for a quick end to the pandemic and a more fun and normal 2022. Despite Omicron, there is a good chance that this will actually transpire and 2022 will be a much better year, from a social perspective, for all of us. However, there are, as always, many political, geopolitical, economic, and market risks as well as dangers we can’t perceive at all. The last two years have provided extraordinary financial gains. However, they have also left investors even more narrowly concentrated in portfolios dominated by U.S. growth stocks and long-duration bonds. Entering the new year, a good resolution would be to rebalance across domestic stocks, international stocks, fixed income and alternatives, both to enhance long-term return prospects and to protect against the surprises that 2022 may bring.
David Kelly is chief global strategist JPMorgan Funds.