INTERNATIONAL EQUITY 2020 Year End Report COMPOSITE PERFORMANCE (% TOTAL RETURN) FOR PERIODS ENDED DECEMBER 31, 20201 SINCE 3 MONTHS 1 YEAR 3 YEARS2 5 YEARS2 10 YEARS2 INCEPTION2,3 HL INTL EQUITY (GROSS OF FEES) 16.46 21.58 10.01 13.08 8.90 8.90 HL INTL EQUITY (NET OF FEES) 16.28 20.81 9.31 12.36 8.24 8.09 MSCI ALL COUNTRY WORLD EX-US INDEX4,5 17.08 11.13 5.38 9.43 5.40 5.45 MSCI EAFE INDEX5,6 16.09 8.28 4.79 7.96 6.00 5.04 1The Composite performance returns shown are preliminary; 2Annualized Returns; 3Inception Date: December 31, 1989; 4The Benchmark Index; 5Gross of withholding taxes; 6Supplemental Index. Please read the above performance in conjunction with the footnotes on the last page of this report. Past performance does not guarantee future results. All performance and data shown are in US dollar terms, unless otherwise noted. SECTOR EXPOSURE (%) WHAT'S INSIDE HL INTL ACWI EX-US (UNDER) / OVER THE BENCHMARK Market Review › INFO TECHNOLOGY 23.6 12.7 After a turbulent year, and CONS STAPLES 13.2 8.9 despite an escalation in the global pandemic, global stock markets CASH 4.2 — rose dramatically following HEALTH CARE 12.6 9.6 positive results for COVID-19 vaccine trials. INDUSTRIALS 14.1 11.6 MATERIALS 8.0 8.1 Performance and Attribution › ENERGY 2.1 4.3 Sources of relative return by FINANCIALS 15.8 18.0 region and sector. REAL ESTATE 0.0 2.6 Perspective and Outlook › UTILITIES 0.2 3.3 We revisit our quaint worries from COMM SERVICES 3.4 7.1 a year ago about a “world turned upside down” by unsustainable CONS DISCRETIONARY 2.8 13.8 valuations and turn to some (12.0) (6.0) 0.0 6.0 12.0 newer concerns about regulatory threats to Big Tech. GEOGRAPHIC EXPOSURE (%) Portfolio Highlights › In a quarter characterized by HL INTL ACWI EX-US (UNDER) / OVER THE BENCHMARK dramatic outperformance of EUROPE EX-EMU 23.8 18.9 cheaply priced shares of lower- quality companies, our emphasis CASH 4.2 — on the highest-quality should have EUROPE EMU 24.1 20.2 dragged us under—but didn’t. MIDDLE EAST 1.4 0.4 Portfolio Holdings › OTHER7 1.0 — Information about the companies FRONTIER MARKETS8 0.0 — held in our portfolio. PACIFIC EX-JAPAN 6.4 7.3 Portfolio Facts › JAPAN 14.5 15.8 Contributors, detractors, CANADA 2.0 6.3 characteristics, and completed transactions. EMERGING MARKETS 22.6 31.1 (12.0) (6.0) 0.0 6.0 12.0 7Includes companies classified in countries outside the Index; 8Includes countries with less-developed markets outside the Index. ONLINE SUPPLEMENTS Sector and geographic allocations are supplemental information only and complement the fully compliant Watch the International International Equity Composite GIPS Presentation. Equity quarterly review Source: Harding Loevner International Equity Model; MSCI Inc. and S&P. MSCI Inc. and S&P do not make any express or implied warranties or representations and shall have no liability whatsoever with respect to any View other reports at GICS data contained herein. hardingloevner.com/insights 2020 Year End Report | 1 This page intentionally left blank. 2 MARKET REVIEW MARKET PERFORMANCE (USD %) MARKET 4Q 2020 TRAILING 12 MONTHS International stock markets rose dramatically in the fourth CANADA 14.1 6.2 quarter despite an escalation in the global pandemic. The starting gun for the run-up was Pfizer’s announcement of bet- EMERGING MARKETS 19.8 18.7 ter-than-expected results for its COVID-19 vaccine trials and EUROPE EMU 17.7 8.5 was followed in rapid fire by positive reports from Moderna, EUROPE EX-EMU 13.5 3.2 AstraZeneca, and Sinopharm. Accelerated approvals gave in- JAPAN 15.3 14.9 vestors further hope for some return to normal commerce in MIDDLE EAST 19.3 15.2 2021, even as COVID-19 hospitalizations in the US and Eu- rope soared. The market rally was broad, with all sectors and PACIFIC EX-JAPAN 20.1 6.6 regions finishing in positive territory, an encouraging cap on MSCI ACW EX-US INDEX 17.1 11.1 a turbulent year. SECTOR PERFORMANCE (USD %) The year began with news of a sinister respiratory illness OF THE M SCI ACW EX-US INDEX spreading throughout Hubei province in China. By the end of SECTOR 4Q 2020 TRAILING 12 MONTHS March, the virus was raging across the globe, prompting gov- COMMUNICATIO N SERVICE S 13.8 19.2 ernments to enact sweeping business and travel restrictions to CONSUMER DISCRETIONARY 16.0 23.1 slow its spread. The economic fallout was immediate, and the CONSUMER STAPLES 8.5 7.1 concomitant stock market decline was swift and severe. ENERGY 22.6 -22.8 Economic policymakers, however, were quick to respond with FINANCIALS 24.8 -4.0 unparalleled levels of support aimed at arresting the decline. HEALTH CARE 6.2 16.0 Central banks in developed countries slashed borrowing costs INDUSTRIAL S 16.2 11.1 and rolled out a dizzying array of measures designed to sup- INFORMATION TECHNOLOGY 24.8 45.9 port asset prices and keep liquidity flowing to businesses. Fis- cal branches, for their part, authorized almost US$12 trillion MATERIALS 20.0 21.7 in spending to prevent a collapse in consumption, an amount REAL ESTATE 12.7 -9.4 equivalent to almost 12% of global GDP. UTILITIE S 14.5 10.0 Source: FactSet (as of December 31, 2020); MSCI Inc. and S&P. Stock markets rebounded in response almost as fast as they had fallen. Despite the ongoing headwinds, the economic recovery gathered steam over the course of the year, and markets con- tinued their upward march. The US dollar was a barometer of investor fear, rallying during outperformed. Good returns from Brazil and India countered the height of the pandemic, as investors sought the safety of weakness in China, where investors digested the implications the world’s principal reserve currency, only to reverse course of Alibaba’s withdrawal of its planned IPO for its Ant Financial over the rest of the year. Only a handful of currencies from affiliate under pressure from banking regulators, and the par- commodity-exporting countries, like Russia and Brazil, were ent company later was put on notice about the potentially anti- lower against the dollar for the year. competitive practices of its core e-commerce business. Pacific ex-Japan also fared well, helped by Australia, which rebounded Companies that benefited from the abrupt shift to remote work with a recovery in commodity prices. and surge in e-commerce, many of them within Information Technology (IT) and Consumer Discretionary, far outpaced Style effects, having favored fast-growing and high-quality more cyclical sectors such as Energy, Financials, and Real Es- companies most of the year heedless of their high valuations, tate, all of which finished in negative territory. The fourth quar- also reversed in the quarter. Stocks of the slowest-growing ter saw an inversion of this pattern, with Financials and cycli- companies, including many cyclicals such as Energy and banks, cals benefiting disproportionally from a vaccine-fueled boost in outperformed the fastest-growing by over 700 basis points. The growth expectations. Non-cyclical sectors such as Health Care, effect of quality was even more pronounced, as shares of com- Consumer Staples, and Utilities lagged. IT, however, continued panies with more leverage and less consistent returns outper- to outperform despite heightened scrutiny from regulators in formed those of the highest-quality companies by over 1,600 Europe, China, and the US. basis points. Valuation as a factor offered no guide to perfor- mance in the fourth quarter one way or the other. Similar final quarter flip-flops occurred along geographical lines. The eurozone, after lagging for three quarters, outper- formed in the fourth, particularly countries hit hardest by the virus such as Spain and Italy. Emerging markets (EMs) also 3 SECTOR PERFORMANCE ATTRIBUTION PERFORMANCE AND ATTRIBUTION TRAILING 12 MONTHS INTERNATIONAL EQUITY COMPOSITE VS. MSCI ACW EX-US INDEX The International Equity Composite rose 16.5%, in the quarter, just behind the 17.1% rise of the MSCI All Country World ex- 6.0 Total Effect: 10.4 Selection Effect: 6.9 US Index. For the full year, the Composite rose 21.6%, well Allocation Effect: 3.5 ahead of the benchmark’s 11.1% return. 4.0 In a quarter where our portfolio returns were so close to the 2.0 Index returns, it seems almost superfluous to parse the attribu- (%)Effect tion too finely. For instance, taken in isolation, the entire differ- 0.0 ence is “explained” by the drag of our holding of 3.7% cash on average through one of the hottest quarters of all time. -2.0 UTIL INFT FINA I NDU ST PL RLST DSCR HLTH ENER CASH MATS Our stocks within Materials lagged, since our holdings of in- COMM dustrial gas, fragrance & flavor, and enzyme producers are Selection Effect Allocation Effect Total Effect less geared to the business cycle than other parts of the sector. Strong stock selection in Financials contributed positively. Ev- ery one of our EM-oriented banks bettered the banks industry GEOGRAPHIC PERFORMANCE ATTRIBUTION group, which in turn led the Financials sector. BBVA, the Span- TRAILING 12 MONTHS ish multinational with substantial Mexican and Turkish subsid- INTERNATIONAL EQUITY COMPOSITE VS. MSCI ACW EX-US INDEX iaries, outpaced the others following the announcement of the 6.0 Total Effect: 10.4 sale of its anemic US business for a healthy price.