BACK TO THE BOUTIQUE INVESTOR BLOG The State of International Stocks in 2023 Michael E. Schroer, CFA MANAGING PARTNER & CHIEF INVESTMENT OFFICER | RENAISSANCE INVESTMENT MANAGEMENT Stock markets around the globe have rallied since last September, with international markets generally outperforming U.S. stocks. Some of this outperformance may be due to a contraction in the valuation discount of international markets versus U.S. markets, but the relative valuation of overseas markets remains very attractive. Index Performance as of 2/28/2023 Sources: Renaissance Research, BlackRock, Bloomberg, S&P Dow Jones. Past performance is not indicative of future returns. Performance for periods of one year or less is not annualized. All total returns are shown in U.S. dollars. The Cyclically Adjusted Price Earnings (CAPE®) ratio was popularized by economist Robert Shiller and is frequently used as a measure of market valuation. A comparison of the CAPE® ratio of the U.S. stock market with other major international markets shows that the U.S. market sells at a significant premium to the rest of the world. Of course, the stock markets of each country or region tend to have their own unique fundamental characteristics and valuation ranges over time. Barclays Capital has calculated and published CAPE® ratios for various markets over the past 40 years, providing a good resource for comparing current valuations with historical averages. The graph below plots the absolute value of CAPE® for various markets (horizontal axis) versus where that market’s current CAPE® ranks in that market’s history (vertical axis). For example, Japan’s stock market has a CAPE® ratio of 20.1x, which ranks in the lowest fifth percentile of Japan’s stock market’s history since 1982. Historic CAPE® Ratios Source: Barclays Capital as of 1/31/2023. The CAPE® ratio is a variation of the traditional Price-to-Earnings (P/E) ratio that uses the ten-year average of inflation-adjusted earnings instead of single year earnings. Using a long-term average of earnings smooths out short-term volatility, theoretically making the CAPE® ratio better suited for detecting long-term over-valuation and under-valuation in a stock market. Percentile ranks are based on the average monthly CAPE ratio from 12/31/1981 to 1/31/2023. As shown in the graph above, many overseas markets not only sell at a significantly lower CAPE® ratio than the U.S. market, but they also sell at more reasonable levels relative to their own long-term histories. To us, this suggests that the valuation differential between many international markets and the U.S. continues to present a favorable environment for many overseas stock markets. LEARN MORE ABOUT RENAISSANCE Past performance is not a guarantee of future results. This Market Update reflects the thoughts of Renaissance as of February 28, 2023. This information has been provided by Renaissance Investment Management. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision, nor should it be considered a recommendation. The views and opinions expressed are those of the Chief Investment Officer at the time of publication and are subject to change. There is no guarantee that these views will come to pass. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. PERFORMANCE If Renaissance or benchmark performance is shown, it represents historically achieved results, and is no guarantee of future performance. Future investments may be made under materially different economic conditions, in different securities, and using different investment strategies and these differences may have a significant effect on the results portrayed. Each of these material market or economic conditions may or may not be repeated. Therefore, there may be sharp differences between the benchmark or Renaissance performance shown and the actual performance results achieved by any particular client. Benchmark results are shown for comparison purposes only. The benchmark presented represents unmanaged portfolios whose characteristics differ from the composite portfolios; however, they tend to represent the investment environment existing during the time periods shown. The benchmark cannot be invested in directly. The returns of the benchmark do not include any transaction costs, management fees, or other costs. The holdings of the client portfolios in our composites may differ significantly from the securities that comprise the benchmark shown. The benchmark has been selected to represent what Renaissance believes is an appropriate benchmark with which to compare the composite performance. The value of an investment may fall as well as rise. Please note that different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio. Investor principal is not guaranteed and investors may not receive the full amount of their investment at the time of sale if asset values have fallen. No assurance can be given that an investor will not lose invested capital. Consultants supplied with these performance results are advised to use this data in accordance with SEC guidelines. The actual performance achieved by a client portfolio may be affected by a variety of factors, including the initial balance of the account, the timing and amount of any additions to or withdrawals from the portfolio, changes made to the account to reflect the specific investment needs or preferences of the client, durations and timing of participation as a RIM client, and a client portfolio’s risk tolerance, investment objectives, and investment time horizon. All investments carry a certain degree of risk, including the loss of principal, and are not guaranteed by the U.S. government. REFERENCED ETF iShares MSCI EAFE ETF—The iShares MSCI EAFE ETF seeks to track the investment results of an index composed of large- and mid-capitalization developed market equities, excluding the U.S. and Canada. REFERENCED INDEX (Indices are unmanaged and are not available for direct investment.) S&P 500 Index—The S&P 500 Stock Index is a market capitalization weighted index and consists of 500 stocks chosen for market size, liquidity and industry group representation. S&P DATA S&P Dow Jones is the source and owner of the trademarks, service marks and copyrights related to the S&P Indexes. S&P® is a trademark of S&P Dow Jones. This presentation may contain proprietary S&P data and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Renaissance Investment Management. S&P Dow Jones is not responsible for the formatting or configuration of this material or for any inaccuracy in Renaissance’s presentation thereof. This data is to be used for the recipient’s internal use only.