Strategies
& Results

Quality and Profitability

 

  • An explanation of:
    • Epoch’s definition of a quality company
    • How quality has performed relative to the broader market
    • The strategy’s attractive exposure to quality and growth factors relative to the market and peer

Attractive Risk Reward Profile

 

  • A look at the strategy’s:
    • Risk reward profile compared to its benchmark, its peer group and other equity asset classes
    • Upside and downside capture and drawdown history
    • Recovery time following drawdowns

Consistent Outperformance

 

  • Details on the strategy’s:
    • Consistent outperformance of its benchmark since inception
    • Performance relative to its peer group
    • High Information Ratio and why the portfolio optimizer seeks to maximize this metric for the portfolio

Differentiation and Consistency

 

  • An analysis of how the strategy:
    • Is differentiated from its benchmark as measured by active share and market cap
    • Compares to its peer group in terms of holdings and style factor exposures
    • Has maintained style consistency while offering that differentiation

ESG and Sustainable Investing

 

  • A review of:
    • Epoch’s approach to ESG and sustainable investing
    • How ESG considerations are handled within the strategy

Investment Philosophy

 

  • An exploration of:
    • The reasons behind the importance of return on invested capital (ROIC) minus weighted average cost of capital (WACC) when evaluating a company’s investments
    • How the markets have treated companies with high ROIC
    • The persistence of high ROIC from one year to the next and how that informs our investment process

Investment Process

 

  • A view into:
    • How we narrow our investable universe using quantitative tools
    • The intertwined portfolio optimization and fundamental research steps of the process
    • Our ongoing portfolio monitoring and risk management process

Our Perspectives

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.

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.

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.

Both sides of the political spectrum have been increasing their calls for regulatory action on the Big Tech companies. Here we explain why tech will continue to be the most dynamic sector of the economy, and why we expect greater breadth in tech market leadership and the emergence of entirely new sub-sectors.