International equities: Why it’s not too late

Tony Coniaris: The International stocks had a very good run last year and to start the year this year. And last quarter, we talked about the benefits of diversification and how many investors are under-allocated to international equities. And now we're getting the question, OK, is it too late?

And here's 20 years of data showing the relative valuations between the U.S. and international markets. It should be relatively familiar to you. But if it's not, in this 20 years, you can see a clear pattern here downtrend in international valuations relative to U.S. valuations. While yes, we're up off the bottom after the performance in 2025, we're still at more than double the average discount over the last 20 years. So there's lots of value to be had outside the United States, and we believe it's an important part of diversifying your portfolio for your clients. Next slide, Christy, if you would.

Just as important as price is the fundamental outlook. And here, what this slide is showing is the change in earnings expectations by region around the world. And you can see the U.S. expectations are up from where they started the year. And the stock market did pretty well.

I mean, earnings growth was in the mid-teens, stocks were up in the high-teens. And then, if you look around the world, the earnings expectations from the beginning of '25 to the end of '25 have actually gone up at a faster rate.

And so part of the reason that those markets did a little better is because the earnings expectations in those markets surprised everybody positively. So the fundamental momentum in those markets is a little bit better than many were expecting. And the healthy fundamentals are typically what drive healthy returns. And that's what we saw this year.

Next, we talked about the international markets having value. How about within these markets where we're finding value?

But just to hit the highlights here. We're getting questions. Man, the portfolios, as markets have gone up, there's a little bit more activity, which is normal. We'll get to that in a little bit. And the activity seems to be that you're adding more high-quality businesses to the portfolio, more stable businesses, more high-quality businesses. Why is that?

And the answer is, that's what the market is giving us today. Our bottoms-up process is leading us to these companies that have been left behind in these really strong markets. And you see that here. I mean, on the slide on the left, this is Europe, as an example, an area where we have a substantial proportion of the portfolio.

And you have to go back to 2009 to find a period as bad for quality businesses as defined academically as we had in 2025. And on the right, it's just a different time series where you can see as the last year or year and a half has developed, quality has really underperformed.

And keep in mind these numbers, it's fine print, but these numbers are average monthly returns. So when you see a 1.5% negative annualized, it's a pretty significant lag of the overall market. So quality is on sale. And that's why we're there.