Do you ever wonder why European Equities and Emerging Market equities have not delivered much in terms of price returns over the past 15 years?

Equity returns are a function of:

In the case of European and Emerging Market equities, earnings per share have been largely stagnant over the past 15 years or so.

Most of the returns for equity investors have come in the form of dividends for Emerging Market Equity Investors and European Equity Investors

In addition, valuation multiples have come down from the heights experienced in 2007..

Many investors are now stating how valuation multiples are really low. They've been saying that for several years now.

Until that happens, fundamental returns would be largely driven by dividends.

It is true that valuation multiples could expand from here. This is the speculative return on equities. But this is not a long-term solution. It also requires skill of market timing, which the majority of investors do not have.

To summarize, it is important to understand the major components that drive equity returns.

Dividends and EPS/FCF Share growth are the fundamental portion of returns, which have historically accounted for almost all of equity total returns. They matter the most in the long run, assuming you didn't overpay massively. These are the fundamental returns - as in a rising tide of economic prosperity lifts all boats.

Changes in valuation multiples matter the least in the very long run for equity returns. Relying on your timing is probably a fools game. However, in the short-run, they do seem to impact returns, because if you overpay too much for an asset, your results would suffer.