Performance context: Epoch Investment Partners

September 22, 2020

Bill Priest, executive chairman, co-CIO and portfolio manager at Epoch Investment Partners is a veteran investor with more than 50 years’ market experience. He recently wrote a paper that takes a close look at markets and the shareholder yield strategy over the past three years to gain a greater understanding of the strategy’s performance track record and the ongoing benefits of the strategy.

The conclusions were as follows:

Over the 2017-2019 period, performance was in-line with expectations and the strategy’s stated objectives:

  • The strategy maintained an average cash dividend yield of 4.0%–4.5%
  • The annualised return for the period was 9.5% (9.1% net), which is consistent with the historical track record and the aspirational return objective of 9% over a market cycle*
  • Volatility remained below that of the market
  • The strategy delivered upside participation in 2017 and 2019 (in both years approximately 80%)
  • In 2018, the strategy lagged the market during the first three quarters but delivered downside protection during the fourth quarter drawdown (+560 bps), ending the year roughly flat with the index
  • Portfolio diversification insulated the strategy so that individual stock missteps had little impact on delivering the overall portfolio objectives.

The first half of 2020 has been more challenging, attributed in part to transitory forces related to the COVID-19 pandemic:

  • Utilities, which have traditionally been reliably defensive, did not behave quite as defensively
  • In the Q1 drawdown, as in some prior drawdowns, utilities also exhibited higher-than-normal volatility (and then got left behind in the Q2 rally)
  • Traditional “risk-on” sectors including consumer discretionary and information technology took on defensive characteristics (thanks to the perceived safety of mega-cap names like Amazon, Apple, and in communication services, Google)
  • Energy stocks suffered from the combined impact of a supply shock and simultaneous demand shock
  • Dividend-paying stocks were pressured by a severe economic downturn and political pressure to discontinue shareholder distributions.
  • Nevertheless, the strategy continued to deliver an average cash dividend yield of 4.0%–4.5%, with the vast majority of portfolio holdings able to maintain or increase dividends.

We believe the foundational architecture of GESY is sound and that the strategy will continue to deliver attractive income in a yield-starved world, with below-market volatility, good upside participation, and attractive downside protection. Our confidence in the strategy is based on the recognition that companies will not abandon good capital allocation practices.

Click here to read Epoch’s ‘Performance Context’ in full. 

* Performance is in USD and is of a representative account. Performance may vary for the Epoch Global Equity Shareholder Yields Funds due to market conditions, fund guidelines and diversity of portfolio holdings. Past performance is not an indication of future performance.

© GSFM 2020