Strategies
& Results

Genesis

 

  • Earnings and dividends have been the primary contributors to equity returns
  • Valuations have waxed and waned, adding little to returns over the long run
  • Launched in 2005 when expectations were that rates would rise and equity valuations would decline equity valuations.
  •  While the opposite happened, we still achieved our goals:
    • A yield competitive with Treasuries
    • A target return goal (enhanced by share repurchases and debt reduction) that was attractive compared to market returns
    • Less volatility than the market
  • The environment for these goals looks more attractive today than at launch

Solution Oriented

 

  • The Shareholder Yield strategy: Global and U.S. versions
  • Same team, philosophy and investment process

  • Differences reflect higher dividends outside the U.S. and more share buybacks within the U.S.

Downside Protection

 

  • Smaller drawdowns driven by
    • Focus on higher quality companies
    • Characteristics of dividend paying stocks
    • Our risk management process
  • Our holdings are often global champions with dominant industry positions, creating the potential for future growth
  • Proven in down markets: In three-month periods where the market was down more than 5% in USD the strategy outperformed 96% of the time, by an average of 4.1%.
  • Lower drawdowns = less recovery time: 26 months for the strategy versus 53 months for the MSCI World Index following the GFC

Lower Volatility

 

  • Not a target, but a historically consistent outcome, due to:
    • Characteristics of companies in which we invest
    • Fundamental research
    • Portfolio construction and risk management processes
  • Stocks with stable or growing dividends have had lower volatility than those that cut their dividends or did not pay one
  • Portfolio construction: designed to lower risk around achieving our aspirational goal
  • Volatility impacts wealth: an identical average annual return, but with less volatility, mathematically leads to a higher end value

Consistent Income

 

  • Consistent income, due to:
    • Characteristics of companies in which we invest
    • Fundamental research
    • Portfolio construction and risk management processes
  • Delivery of above-average yield: greater and steadier than global equities and income generating investments like investment grade credit, real estate and infrastructure
  • Strong results helped by a large portion of holdings raising their dividends each year
  • Institutions and individuals need income, but income from bonds and other traditional sources has been diminished
  • Dividends are always positive contributors to equity market returns

Targeted Return

 

  • Aspirational return of 9% per annum over a full market cycle, with two-thirds of that return coming from payouts to shareholders – dividends, share buybacks and debt reduction – and one-third from cash flow growth
  • The average of the annualized returns in the 97 overlapping five-year periods since the inception of the strategy has been 8.9% p.a. in USD
  • An aspirational return target may be beneficial to investors that have a target return associated with their investment portfolios to meet their liabilities

Portfolio Fit

 

  • Strategy can be a core holding or a standalone solution
  • Defensive characteristics help with active return diversification making it complementary to passive equity as well as higher beta satellite managers
  • Low correlation to value equities and negative correlation to growth indexes, make the strategy an effective diversifier for a global equity allocation
  • Potential for capital appreciation, driven by cash flow growth, make the strategy attractive in most market environments.
  • Strategy expected to perform well in fundamentally driven markets and potentially lag in more speculative, momentum and growth driven markets

Philosophy & Process

 

  • Value is created through free cash flow; whether that value grows depends on capital allocation
  • Once companies exhaust opportunities for profitable growth, they should provide shareholder yield to owners (dividends, buybacks and debt reduction)
  • The strategy has a disciplined approach:
    • Quantitative screen
    • Fundamental research
    • Portfolio construction and risk management that diversifies the sources of return

Risk Management

 

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Global Equity Shareholder Yield: A Portfolio Cornerstone for an Uncertain World
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Contact Us

Email
info@eipny.com

New York
399 Park Avenue
New York, NY 10022
Phone: 212-303-7200

London
4th Floor, Carrington House
126 – 130 Regent Street
London, W1B 5SE
Phone: (+44) 0203 879 3900

Chicago
71 South Wacker Drive
Chicago, IL 60606
Phone: 312-800-0142