Investment Approach

Investment Process

Our goal is to produce an efficient portfolio on a risk/return basis. We undertake detailed fundamental research on individual companies, diversify across attractive companies and economic sectors, limit individual holding sizes, and employ a strict sell discipline. If we have identified a good business at a good price, time is our ally as patient investors. As a result, we have relatively low portfolio turnover in most strategies. Epoch’s Investment Policy Group, representing the most experienced members of the investment team, provides a macro-level perspective that portfolio managers may use as a context when evaluating individual companies and sectors. This is combined with rigorous quantitative and qualitative analysis that incorporates the following components:

1 Analyze the business:

Determine the sustainability of the business, earnings drivers, barriers to entry, and competitive advantages.

2 Understand the Cash Flow Structure:

Focus on companies that generate cash earnings and assess the quality and character of those earnings to determine the net cash flow from the business.

3 Relate Cash Flow to Enterprise Value:

Examine relevant claims against net cash flow and determine the necessity of these claims to maintain and grow the business. Evaluate how management will use free cash flow. Value the cash flow stream and compare it to enterprise value to determine the attractiveness of the investment.

4 Evaluate Management Quality:

Identify managements with the intention and demonstrated ability to create shareholder value.

5 Seek Unrecognized Assets:

Uncover, where possible, hidden, undervalued or underutilized assets, especially in under-researched small- and mid-cap companies.

6 Manage Risk:

Risk management is integrated into each step of the investment process. We have a team dedicated to quantitative research and risk management, ensuring that the portfolio construction process takes into account aggregation risks and diversification objectives. The goal is twofold: first, to minimize stock-specific risk through greater diversification, and second, to avoid unintended risks or biases at the portfolio level. Our Chief Risk Officer is a co-portfolio manager of every strategy we offer. As a result, the lead portfolio manager is continually aware of these risks. While the research and security selection methodology is the starting point for all of Epoch’s equity strategies, the portfolio construction process is adaptable to the specific parameters of each investment strategy and our clients’ individual guidelines.

Our Perspectives

During the past two years, CBDC has progressed from a bold speculative concept to a seeming inevitability and will soon be a core feature of our financial ecosystem. The rollout of CBDCs will further accelerate the digitization of the economy, which is the key defining feature of markets over the past decade. This paper explores the implications for monetary policy, the FinTech and payments sectors, and the potential disintermediation of significant swaths of the commercial banking system.

March 24, 2021

Money 3.0: Central Bank Digital Currencies (CBDC)

During the past two years, CBDC has progressed from a bold speculative concept to a seeming inevitability and will soon be a core feature of our financial ecosystem. The rollout of CBDCs will further accelerate the digitization of the economy, which is the key defining feature of markets over the past decade. This paper explores the implications for monetary policy, the FinTech and payments sectors, and the potential disintermediation of significant swaths of the commercial banking system.

The Cambrian explosion of exciting breakthroughs in AI, autonomous driving, 5G, and cloud computing will drive double-digit growth in semiconductor revenues for the foreseeable future. Superstar firms have come to dominate all subsectors of the increasingly concentrated semiconductor industry, which implies pricing power and explains the sector’s attractive operating margins and return on capital. Valuations are reasonable, and we have a constructive view on the semiconductor sector and believe it possesses considerable upside.

February 11, 2021

Moore’s Law & the Race for the Rest of the Chessboard

The Cambrian explosion of exciting breakthroughs in AI, autonomous driving, 5G, and cloud computing will drive double-digit growth in semiconductor revenues for the foreseeable future. Superstar firms have come to dominate all subsectors of the increasingly concentrated semiconductor industry, which implies pricing power and explains the sector’s attractive operating margins and return on capital. Valuations are reasonable, and we have a constructive view on the semiconductor sector and believe it possesses considerable upside.

Both sides of the political spectrum have been increasing their calls for regulatory action on the Big Tech companies. Here we explain why tech will continue to be the most dynamic sector of the economy, and why we expect greater breadth in tech market leadership and the emergence of entirely new sub-sectors.

January 22, 2021

Will Biden Take On the Tech Barons?

Both sides of the political spectrum have been increasing their calls for regulatory action on the Big Tech companies. Here we explain why tech will continue to be the most dynamic sector of the economy, and why we expect greater breadth in tech market leadership and the emergence of entirely new sub-sectors.

More than just our proprietary stock selection model, the Epoch Core Model (ECM) is a rules-based expression of Epoch’s free cash flow investment philosophy. Learn more about the components that make up the ECM and how it’s being used to enhance the firm’s investment processes across strategies, to surface ideas for further research, to prioritize our research queue, and to inform our portfolio construction process.

December 1, 2020

The Epoch Core Model: Our Proprietary Stock Model

More than just our proprietary stock selection model, the Epoch Core Model (ECM) is a rules-based expression of Epoch’s free cash flow investment philosophy. Learn more about the components that make up the ECM and how it’s being used to enhance the firm’s investment processes across strategies, to surface ideas for further research, to prioritize our research queue, and to inform our portfolio construction process.

The final two months of the U.S. presidential campaign promises a torrent of incendiary rhetoric and plenty of surprises for both voters and investors. Market volatility typically rises ahead of elections and if the race remains close we may see elevated uncertainty well beyond November 3. In our latest Insight piece, we look at the implications for taxes, regulation, health care, global trade, green infrastructure and anti trust issues among others, all dependent on the outcomes of the presidential and congressional contests.

September 10, 2020

Election Campaign Enters Overdrive: Choppy Markets Ahead

The final two months of the U.S. presidential campaign promises a torrent of incendiary rhetoric and plenty of surprises for both voters and investors. Market volatility typically rises ahead of elections and if the race remains close we may see elevated uncertainty well beyond November 3. In our latest Insight piece, we look at the implications for taxes, regulation, health care, global trade, green infrastructure and anti trust issues among others, all dependent on the outcomes of the presidential and congressional contests.

In understanding the performance of any investment strategy, it is important to pay attention to how real economic events drove that performance, rather than fall back on a set of abstract  factor returns as if they were somehow responsible.

May 1, 2020

Factors: Not Driving, Just Along for the Ride

In understanding the performance of any investment strategy, it is important to pay attention to how real economic events drove that performance, rather than fall back on a set of abstract  factor returns as if they were somehow responsible.

The last six months have been profoundly transformational, with the COVID shock acting as an accelerant for the digitization of the economy. This radical transition is especially advantageous for asset-light business models. All companies will be acutely affected, although the biggest winners are platforms, with their economies of scale and low marginal costs.

August 19, 2020

The Pandemic Accelerant: Digital Age Business Strategies

The last six months have been profoundly transformational, with the COVID shock acting as an accelerant for the digitization of the economy. This radical transition is especially advantageous for asset-light business models. All companies will be acutely affected, although the biggest winners are platforms, with their economies of scale and low marginal costs.

Does a stock’s price and its P/E ratio tell you how much a company is worth? Conventional wisdom says yes, but we think otherwise. In this paper we explore:

  • The theory behind the discounted cash flow (DCF) valuation model and the underappreciated role that ROIC plays in the model
  • The P/E ratio and find that it does not tell us what most people think it does, nor does its offshoot, the P/E to growth (PEG) ratio
  • How we can use what we have learned about the DCF model to deconstruct P/E ratios in the real world to better understand what they do tell us
June 17, 2019

The P/E Ratio: A User’s Manual

Does a stock’s price and its P/E ratio tell you how much a company is worth? Conventional wisdom says yes, but we think otherwise. In this paper we explore:

  • The theory behind the discounted cash flow (DCF) valuation model and the underappreciated role that ROIC plays in the model
  • The P/E ratio and find that it does not tell us what most people think it does, nor does its offshoot, the P/E to growth (PEG) ratio
  • How we can use what we have learned about the DCF model to deconstruct P/E ratios in the real world to better understand what they do tell us