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
  • U.S. version launched in 2012 due to client demand and the popularity of the global version which was launched in 2006
  • We 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 often enjoy dominant industry positions, creating the potential for future growth
  • Proven in down markets: In three-month periods where the market was down in USD the strategy outperformed 76% of the time, by an average of just under 3.0%
  • Lower drawdowns = less recovery time: 6 months for the strategy versus 9 months for the Russell 1000 Value Index from max drawdown in September 2015
  • The global version of the strategy, which has a longer history that included the Global Financial Crisis, took 26 months to recover from that crisis versus 53 months for its benchmark, the MSCI World

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 or did not pay a dividend
  • 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 ending value

Consistent Income

 

 

  • Consistent income, due to:
    • Characteristics of companies in which we invest
    • Fundamental research
    • Portfolio construction and risk management processes
  • Above-average yield: historically greater and steadier than equities and income generating investments like investment grade bonds
  • 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

Targeted Return

 

 

  • Aspirational return of 8% 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 9 overlapping five-year periods since the inception of the strategy has been 12.9% p.a. (gross) 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 in a multi-manager portfolio 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 both growth and value equity indexes, make the strategy an effective diversifier for a U.S. equity allocation
  • Potential for capital appreciation, driven by cash flow growth, make 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

Investment 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