Strategies
& Results

Non-U.S. Equity Choice

Seeks superior total and risk-adjusted returns by investing in companies based outside the U.S.

At a Glance

Our Non-U.S. Equity strategy pursues long-term capital appreciation by investing in a concentrated portfolio of 30-50 stocks outside the U.S. As fundamental investors with a long-term orientation, we select companies based on their ability to generate free cash flow and allocate it intelligently for the benefit of shareholders. The portfolio reflects the highest-conviction ideas of our investment team as appropriate for a concentrated portfolio.

The Non-U.S. Equity Choice Opportunity

  • Access to a portfolio of non-U.S. companies we believe have superior risk-reward profiles
  • Investments in companies with strong free cash flow and effective capital allocation policies
  • A concentrated portfolio, benefiting from proprietary research that drives our Non-U.S. strategies; a majority of positions are high convictions in our other strategies
  • Risk Management integrated with the investment process to minimize unintended risks and reduce volatility
  • Cash-flow-oriented approach complements other managers within an overall asset allocation plan

Epoch’s Distinct Investment Philosophy and Approach

The bedrock of our philosophy is that the growth and applications of free cash flow represent the best predictor of long-term shareholder return. As a result, our security selection process is focused on free-cash-flow metrics and capital allocation as opposed to traditional accounting-based metrics such as price-to-book and price-to-earnings. We look for a consistent, straightforward ability to generate free cash flow and to allocate it effectively among internal reinvestment opportunities, acquisitions, dividends, share repurchases and debt pay downs. An essential factor is the evaluation of each company’s management team to confirm their commitment to transparency and building shareholder value. The companies uncovered by this process have inherently less volatility due to their ability to generate cash flow.

This strategy incorporates qualitative and quantitative analysis to identify potential investments, taking into consideration factors that can lead to growing cash flow. Stocks are then subject to rigorous fundamental research. We develop an investment thesis as we assess the sources of the company’s long-term value creation and management’s ability to nurture it. We scrutinize management’s track record of allocating capital, looking for those with the discipline to use free cash flow to maximize return on investment, thereby creating shareholder value. Once a stock has been purchased, we continually revisit our thesis and sell the stock if our price target is reached, our thesis changes or we see another investment with a better risk-reward profile.

While the portfolio is constructed from the bottom up, decisions are made with consideration of the macro context. Epoch’s Investment Policy Group, composed of senior members of our different strategy groups, provides insight and guidance on the global market environment and macroeconomic and industry trends.

We analyze risk as part of the portfolio construction process to monitor portfolio volatility and better ensure the delivery of the strategy’s goals. A senior member of the Quantitative Research and Risk Management team is a co-portfolio manager on every strategy managed by Epoch so that portfolio managers are aware of unintended biases and the effect individual securities may have on the portfolio. Portfolio construction is geared toward achieving the bulk of excess returns through stock selection.

Disclosures and Fees »

Our Perspectives

The current hype about two-sided digital platforms, blitzscaling and winner-takes-most markets has fueled a surge in IPO listings and produced stratospheric valuations that are difficult to reconcile with free-cash-flow (FCF) fundamentals. The big question is, are we repeating the excesses of the dot-com boom? In this paper, we look at the reasoning used by those who think history is repeating itself including IPO supply, profitability and VC funding. We also look at the weaknesses in those arguments and why some believe that the current situation is different from the dot com bubble, such as median age of tech IPOs and sales growth. Finally, we explore how investors can look at these companies through a free cash flow lens.

June 19, 2019

Blitzscale and Hope: Unicorns, IPOs and the Fear of Repeating the Late 1990s

The current hype about two-sided digital platforms, blitzscaling and winner-takes-most markets has fueled a surge in IPO listings and produced stratospheric valuations that are difficult to reconcile with free-cash-flow (FCF) fundamentals. The big question is, are we repeating the excesses of the dot-com boom? In this paper, we look at the reasoning used by those who think history is repeating itself including IPO supply, profitability and VC funding. We also look at the weaknesses in those arguments and why some believe that the current situation is different from the dot com bubble, such as median age of tech IPOs and sales growth. Finally, we explore how investors can look at these companies through a free cash flow lens.

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

If there is a “small-cap effect” then why has the Russell 2000 underperformed the Russell 1000 over time?

January 18, 2019

The Size Paradox

If there is a “small-cap effect” then why has the Russell 2000 underperformed the Russell 1000 over time?

China’s mercantilist behavior, underscored by its “Made in China 2025 initiative,” is in conflict with U.S. demands for greater IP protection, a level playing field and improved market access. Left unresolved, free trade and globalization will be in retreat, with broad economic implications beginning with manufacturers.

December 10, 2018

Trump, Tech and Trade

China’s mercantilist behavior, underscored by its “Made in China 2025 initiative,” is in conflict with U.S. demands for greater IP protection, a level playing field and improved market access. Left unresolved, free trade and globalization will be in retreat, with broad economic implications beginning with manufacturers.

While the e-Commerce index as a whole appears frothy, many companies in the sector do possess sound and promising business models. For investors, the key to success is understanding how these business models should be valued. In this paper we examine the reasons e-Commerce may be a bubble, the reasons it may not and a free cash flow based methodology for valuing e-Commerce companies.

September 13, 2018

Is e-Commerce a Bubble?

While the e-Commerce index as a whole appears frothy, many companies in the sector do possess sound and promising business models. For investors, the key to success is understanding how these business models should be valued. In this paper we examine the reasons e-Commerce may be a bubble, the reasons it may not and a free cash flow based methodology for valuing e-Commerce companies.

Three developments (the unwinding of QE, the soaring US budget deficit and the impending wall of maturities, especially of corporate bonds) will engender higher volatility and wider credit spreads. There is also a risk that interest rates will start rising for “bad” reasons (that is, an increase in fixed income supply). Each of these outcomes would be a headwind for high duration strategies.

July 2, 2018

The Return of Price Discovery

Three developments (the unwinding of QE, the soaring US budget deficit and the impending wall of maturities, especially of corporate bonds) will engender higher volatility and wider credit spreads. There is also a risk that interest rates will start rising for “bad” reasons (that is, an increase in fixed income supply). Each of these outcomes would be a headwind for high duration strategies.

Modern Portfolio Theory (MPT) dominates investment thinking today, but the pre-MPT view of the world still holds valuable insights. Our new white paper explores the limits of MPT in aiding successful investing.

April 13, 2018

The Limits of Theory

Modern Portfolio Theory (MPT) dominates investment thinking today, but the pre-MPT view of the world still holds valuable insights. Our new white paper explores the limits of MPT in aiding successful investing.

The Digital Age and the transition from “atoms” to “bits” implies a capital-light economy in which technology is being substituted for labor and physical assets. Its impact is widespread and stretches beyond the technology sector. In the third part of our technology focused series we explore:

  • The evolution of technology and why it is so noticeable today
  • The key differentiator between the first and second machine ages
  • Technology’s impact on microeconomic factors such as demand and marginal revenue
  • Why the digital age entails a radical reevaluation of macroeconomics
  • Implications for investors
January 31, 2018

When “Bits” Meet “Atoms”

The Digital Age and the transition from “atoms” to “bits” implies a capital-light economy in which technology is being substituted for labor and physical assets. Its impact is widespread and stretches beyond the technology sector. In the third part of our technology focused series we explore:

  • The evolution of technology and why it is so noticeable today
  • The key differentiator between the first and second machine ages
  • Technology’s impact on microeconomic factors such as demand and marginal revenue
  • Why the digital age entails a radical reevaluation of macroeconomics
  • Implications for investors

It has long been common practice in the investment world to divide the market up into “value stocks” and “growth stocks.” What do these labels really mean? “Value” connotes that the stocks in this category are undervalued, and should therefore outperform over time, while “growth” implies that these are stocks with faster earnings growth.

December 7, 2017

What Do We Mean When We Talk About Value?

It has long been common practice in the investment world to divide the market up into “value stocks” and “growth stocks.” What do these labels really mean? “Value” connotes that the stocks in this category are undervalued, and should therefore outperform over time, while “growth” implies that these are stocks with faster earnings growth.