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
  •  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 annual returns in the 97 overlapping five-year periods since the inception of the strategy has been 8.9% 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

 

 

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


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