July 19, 2022 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.

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June 2, 2022 What Happens in Crypto Stays in Crypto?

It has been a vicious year for cryptocurrencies and even “stablecoins” have not been immune. In this paper we examine the potential for contagion into traditional asset classes, what may be propping up the up the crypto sector and the regulatory outlook.

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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.

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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.

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November 20, 2020 Finding Value in the Darkest of Times: Evaluating Opportunities in the Small Cap Value Universe During COVID-19

We believe the recent market dislocation caused by the COVID-19 crisis has created a historic opportunity to buy U.S. Small Cap Value stocks at attractive valuations. However, “value” is not what it seems when viewed through the oft used metric of “price to book value.” Indeed, to be relevant in the capital marketplace going forward, “value” requires a redefinition utilizing finance terminology and not accounting measures.

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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.

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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.

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March 16, 2020 Comparing Two Market Crises: A New Type of Crisis Requires a New Solution

There have been two monumental crises in the past two decades, the Global Financial Crisis and the current COVID-19 pandemic. While the COVID-19 crisis is crippling financial markets in a similar fashion, monetary policy in the form of QE will not be the silver bullet we need. The solution to the current crisis will require prudent fiscal policy to see us through.

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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?

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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.

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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.

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April 16, 2018 The Bull vs. Bear Case for Emerging Markets

Kevin Hebner, Epoch’s investment strategist, lays out the positive case along with the attendant risks of investing in emerging markets over the coming several years.

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February 23, 2017 Trump and Trade: What are the Risks?

In this “Insights” piece we look at President Trump’s trade team and how it is likely to implement the protectionist trade views he has held for years. With China being the number one target of potential trade policy, we explore the views held by the various members of the trade team as they relate to China. The piece also identifies other countries that might likely be affected by U.S. trade policies, the likelihood of a trade war and the impact a trade war could have on the U.S. economy. Finally, we discuss the potential implications on equity markets.

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January 1, 2017 Vox Populi: In 2017 the Eurozone Will Bend, But Not Break

The rise of populist political parties, a lack of progress on key reforms and tight fiscal policies will present challenges for the euro zone and its lackluster economy in 2017. CEO and Co-CIO Bill Priest and Investment Strategist Kevin Hebner discuss these issues and the implications for investors.

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December 31, 2016 Spotlight on Smaller U.S. Companies in the Current Environment

In a follow up to a piece that was originally featured in our October 2016 Newsletter, U.S. Small and SMID Cap Portfolio Manager Michael Caputo looks at the performance of smaller U.S. companies since the election of Donald Trump and whether the outlook for them has changed.

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November 9, 2016 Investment Implications of the U.S. Election

On November 8, 2016, the U.S. elected Donald Trump to become the country’s 45th President. The balance of power in Congress remained unchanged with the Republicans retaining a majority in both the House and Senate. In this paper, CEO and Co-CIO Bill Priest and Investment Strategist Kevin Hebner discuss areas of concern for the U.S. economy as well as the positive potential of the election results.

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October 6, 2016 Is Japan Investable Through a Cash Flow Prism?

In this paper, CEO and Co-CIO Bill Priest and Investment Strategist Kevin Hebner examine recent trends regarding Japanese corporate governance, buybacks, dividend policies, cash levels, cross-shareholdings and M&A activity to show the impressive changes that are occurring. They discuss whether these changes make Japanese companies more investible through a cash flow prism and identify the most promising sectors for cash-flow focused investors.

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June 22, 2016 Brexit Vote:  Potential game changer for the U.K. and Europe

On June 23, 2016, the U.K. will vote to either remain in the European Union or leave it. Epoch’s general view is that the U.K. would be better served to remain than to leave it. The short-term implications of a vote to leave include significant market turbulence, a weakening GBP, stalled M&A activity and a general flight to quality within the U.K. and possibly globally, but are difficult to fully quantify.

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May 3, 2016 Have We Hit An Inflection Point?

We expect only modest global GDP growth during 2016 and 2017, coupled with lower-for-longer policy rates. PMIs, which are the best economic indicators for signaling inflections in the cycle, continue to send mixed signals. The outlook for earnings remains challenging and even ex-energy, we expect minimal earnings growth this year. Additionally, equity markets appear to already be fully valued and we see little room for multiple expansion from here. Our cautious perspective is partly due to our view that the global economic outlook is clouded by several secular headwinds.

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April 29, 2016 What Would Negative Interest Rates Mean for U.S. Equity Markets

The U.S. economic recovery appears to be on firmer ground and the Federal Reserve is unlikely to cut interest rates into negative territory during 2016 or even 2017. The Fed is sufficiently worried, however, about anemic global growth and the Unites States’ vulnerability to external shocks that it is updating its giving thought to how it might follow the lead of other central banks and introduce a negative interest rate policy (NIRP). How would U.S. equity markets react if the Fed were to cut rates below zero?

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June 15, 2015 Cash-Flow Opportunities in the Commercial Aerospace Industry

It is expected that the next twenty years will see a dramatic increase in commercial aircraft production, driven by the demand for air travel and the push to replace airplanes with newer, more fuel efficient versions. In our latest Insight, Epoch Co-CIO, David Pearl, and members of our investment team explore these drivers and our approach to finding the cash flow opportunities in the commercial aerospace industry.

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March 24, 2015 Active Share

Active Share has gained increasing acceptance among consultants and plan sponsors in determining whether investment managers are truly active. In our most recent Insight, we provide our view on how to interpret this statistic.

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March 6, 2015 Utilizing Utilities in Shareholder Yield

Epoch’s most recent Insight piece, Utilizing Utilities in Shareholder Yield, discusses how and why companies in the utilities sector have historically played a significant role in the Shareholder Yield strategies.

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February 14, 2014 Rising Interest Rates & Shareholder Yield

A quick look at the potential effects of rising interest rates on Epoch’s Shareholder Yield strategies.

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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.

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.

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.

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.

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.