Michael E. Schroer, CFA MANAGING PARTNER & CHIEF INVESTMENT OFFICER | RENAISSANCE INVESTMENT MANAGEMENT Highlights Thus far in 2023, stock market outperformers have had a much different flavor than experienced in the previous year. A look at the performance of stocks ranked by various factors shows a pronounced low quality and “risk-on” profile for the stock market winners over the first six weeks of this year. The table below shows the performance of stocks within the Russell 1000® Growth Index grouped by various criteria (or “factors”) by Bloomberg. Bloomberg ranks all the stocks in the Index by a specific factor and then calculates the performance difference of the top 20% by each factor versus the performance of the bottom 20%. The process is repeated monthly. If the calculation yields a positive result, it suggests that the highest ranked stocks, on the basis of that factor, outperformed the lowest ranked stocks over the period measured. Performance Difference Between Factors Russell 1000® Growth Index Constituents Source: Bloomberg. Data ending 2/17/2023 Hypothetical portfolios are assumed to be equally weighted and rebalanced monthly. Past performance is not indicative of future results. All returns are shown in U.S. dollars. Returns are unannualized. In 2022 and over the previous ten years, factors such as high return on invested capital, high free cash flow yield, and high quality led to strong outperformance for the highest ranked stocks on those measures. In contrast, stocks exhibiting high levels of earnings variability, beta, price volatility, and short interest underperformed stocks with lower levels of these characteristics in 2022 and over the previous ten years. Thus far this year, however, these trends have been reversed. Stocks with higher betas and price volatility have been the biggest winners, while higher quality stocks and stocks with higher levels of profitability have lagged. While these trends may continue in the short term, we believe that higher quality stocks are likely to eventually regain their market leadership. Over the long term, we believe that adherence to a disciplined focus on high quality, highly profitable, and reasonably priced stocks is likely to continue to deliver good results. LEARN MORE ABOUT RENAISSANCE
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