Emerging Markets Equity

At a Glance

Our Emerging Markets Equity strategy invests in a portfolio of 60-80 securities of companies, selected based on their ability to generate free cash flow and allocate it intelligently for the benefit of shareholders.

Epoch’s Systematic 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. Capital allocation matters because decisions on how to allocate cash flows — whether to reinvest in order to grow a company, or to return capital to shareholders — can create or destroy long-term shareholder value. Specifically, we look for a consistent and sustainable ability to generate free cash flow and to allocate it effectively among internal reinvestment opportunities, acquisitions, dividends, share re-purchases and debt pay downs.

The strategy is actively managed and uses a systematic, data-driven investment process. We believe this approach to emerging markets investing provides discipline, repeatability, and intelligent flexibility.

We primarily use the Epoch Core Model, our proprietary quantitative model, to generate research ideas. Our sector specialists and thematic views are additional sources of research ideas. We recognize that even the best stock selection models will struggle to capture complex industry dynamics and nuanced differences in business models. As such, we rely on detailed fundamental analysis performed by sector specialists to understand the sources of competitive advantage for companies, how they translate into free cash flows, and whether these will persist over time. Another key component of the analysis is an evaluation of management’s framework and ability to allocate capital effectively to create shareholder value. The companies uncovered by this process may have inherently less volatility due to their ability to generate cash flow over time. Only stocks which meet our investment criteria are considered for inclusion in the portfolio.

Our portfolio construction process considers the relative attractiveness of a stock per the Epoch Core Model, our fundamental analyst insights, as well as risk considerations. Once a stock has been purchased, we continually revisit our thesis. The stock is sold if our thesis is challenged or if we see another investment with a better risk-reward profile.

The investment team offers complementary skills and perspectives – quantitative, fundamental, and data science. Our team is integrated — fundamental analysts are embedded with our quantitative and data science professionals and work closely on model and stock research, as well as various long-term projects. In this manner, we ensure a unified purpose and cross-fertilization of ideas.

We believe effective risk management requires an active, forward-looking, and flexible approach, especially in Emerging Markets where country risk can be a significant source of under-performance. We use a comprehensive risk management process to minimize unintended risks and diversify portfolio holdings across countries, industries, market cap ranges, and other risk factors. This tends to result in a portfolio with below-average volatility.

Disclosures and Fees »