Investment Perspectives Webinar for 3Q22 - July 21, 2022
Our new format webinar featured a brief overview of the macro landscape, a deeper look at one aspect of that macro view and the investment implications of a topic our investment team is evaluating. This quarter we heard about:
- Broad Capital Markets Outlook
- Macro Backdrop of Inflation and Supply Chain Issues
- Investment Implications of Inflation and Supply Chain Issues
Reflation and the 3Ds: Expect an Increased Focus on Capital Allocation, Quality and Sustainable Free Cash Flow
Until recently, we had been living in a disinflationary environment that started in the 1980s. We believe three factors – Deglobalization, Demographics and Decarbonization – have led us to a secular reflationary environment. As a result the next decade is going to look quite different than the 2010s, with a number of critical implications for investors.
This Is Why We Can't Have Nice Things
Of late, people are blaming a variety of economic ills on an unlikely villain: the desire of investors to earn good returns on capital. But, no industry can be expected to survive if it is not creating value for the investors in that industry. Earning good returns on capital is not an obstacle to satisfying consumer demands; it’s what enables companies to continue to satisfy those demands.
Greenflation: The Energy Transition Will Prove Inflationary
The transition to net-zero emissions (NZE) involves a fundamental change in the structure of the economy, and will likely be messy, implying periodic supply shortages and even more volatile energy prices. Further, inflation and nominal interest rates will probably be higher and more volatile, especially relative to the levels of the last two decades. This has not yet been priced into markets.
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
Our Investment Philosophy
Epoch’s investment approach is designed to uncover opportunities that others may miss. In our view, growth of free cash flow, and the intelligent use of that cash flow, represent the best predictor of long-term shareholder return. We look for strong company management with a commitment to financial transparency and a track record of delivering returns to shareholders.
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At Epoch we aspire to:
- Provide superior, risk-adjusted results using a transparent approach based on our free cash flow philosophy.
- Serve investors who seek and value Epoch’s investment approach.
- Continue as a thought leader and innovator in global investment management.
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John Tobin on CFA Institute Guiding Asset Podcast
Shareholder Yield Portfolio Manager John Tobin spoke with Mike Walberg, the host of CFA Institute’s “Guiding Assets” podcast, to discuss the state of dividends and “equity duration,” and what that means for dividend payers versus non-dividend payers in a rising rate environment.

John Tobin in Livewire Q&A
In this Q&A, Tobin shares his thoughts on the sell-off in tech, as well as why he is investing in semiconductor stocks as his preferred play. He also outlines the outlook for dividends through to 2023, and explains why he believes it is unlikely that China will invade Taiwan.

Our Perspectives
Of late, people are blaming a variety of economic ills on an unlikely villain: the desire of investors to earn good returns on capital. But, no industry can be expected to survive if it is not creating value for the investors in that industry. Earning good returns on capital is not an obstacle to satisfying consumer demands; it’s what enables companies to continue to satisfy those demands.

This Is Why We Can’t Have Nice Things
Until recently, we had been living in a disinflationary environment that started in the 1980s. We believe three factors – Deglobalization, Demographics and Decarbonization – have led us to a secular reflationary environment. As a result the next decade is going to look quite different than the 2010s, with a number of critical implications for investors.

The transition to net-zero emissions (NZE) involves a fundamental change in the structure of the economy, and will likely be messy, implying periodic supply shortages and even more volatile energy prices. Further, inflation and nominal interest rates will probably be higher and more volatile, especially relative to the levels of the last two decades. This has not yet been priced into markets.

Greenflation: The Energy Transition Will Prove Inflationary
China has launched a new policy framework, “Common Prosperity,” which escalates government steerage of the economy and features two critical initiatives. First, Beijing is taking action to tame the country’s real estate obsession. Second, the “summer blizzard” of regulatory actions has targeted a wide range of tech-related sectors including fintech, social media, online tutoring and gaming. Here, we examine the implications for investors of the pendulum swinging ever further in favor of the state.

China’s “Common Prosperity”: What Does it Mean for Investors?
The recent surge in start-ups and unicorns reflects the broadening of the digital revolution across industries, and suggests improving productivity and free cash flow. Further, although the digitization of the economy is still in early earnings, we expect digital platforms to represent the majority of market cap by 2025, with tech, health care and communications the most promising sectors.

The Pandemic Accelerant Part II: Turbo-Charging the Digital Economy
Inflation risks are at a four-decade high due to today’s combination of a generous Treasury, an overly tolerant Fed, and a reopening economy. While our base-case scenario assumes only a brief period of above-target inflation, investors should brace themselves for more inflation scares, which will likely remain a key driver of equity markets well into 2022.
