quarterly capital markets outlook
TRANSCRIPT
David N.
Pearl
Executive
Vice President
and Co-CIO
William W.
Priest
Chief Executive
Officer
and Co-CIO
PRESENTED BY
The information contained in this presentation is distributed for informational purposes only and should not be considered investment advice or a recommendation of any particular security, strategy or
investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The information contained in this presentation is accurate as of the date
submitted, but is subject to change. Any performance information referenced in this presentation represents past performance and is not indicative of future returns. Any projections, targets, or
estimates in this presentation are forward looking statements and are based on Epoch’s research, analysis, and assumptions made by Epoch. There can be no assurances that such projections,
targets, or estimates will occur and the actual results may be materially different. Other events which were not taken into account in formulating such projections, targets, or estimates may occur and
may significantly affect the returns or performance of any accounts and/or funds managed by Epoch. To the extent this presentation contains information about specific companies or securities
including whether they are profitable or not, they are being provided as a means of illustrating our investment thesis. Past references to specific companies or securities are not a complete list of
securities selected for clients and not all securities selected for clients in the past year were profitable.
Epoch’s
Quarterly
Capital Markets
Outlook
April 7, 2016 | The webinar replay will be available on our website: www.eipny.com
Barney
Rosen, MD
Senior
Research
Analyst
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
S&P 500 (%)
MSCI World (%)
P/E Expansion 45.1 41.4
EPS Growth 17.4 (0.8)
Dividends 14.5 12.0
Total 77.0 52.6
Market Perspective
P/E Expansion
58.5%
Total
Return
77.0%
Dividends
22.8%
P/E
Expansion
78.8%
Total
Return
52.6%
EPS
Growth
-1.6% EPS Growth
22.7%
Dividends
18.8%
Source: Standard & Poor's; MSCI; Epoch Investment Partners; December 2015
1
S&P 500 MSCI World
Cumulative contribution to return 2012 through 2015
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
1,250
1,350
1,450
1,550
1,650
1,750
1,850
1,950
2,050
2,150
2,250
Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16
Index
S&P 500
17x
16x
15x
14x
13x
12x
1. Please see our White Paper dated May 29, 2014: The Power Of Zero + The Power Of The Word
Source: Standard & Poor's, Yardeni Research, Epoch Investment Partners; March 2016
P/E
S&P 500 next twelve months earnings multiples
Equity Markets Have Re-rated As A Result Of QE1
2
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2011 Est 2012 Est 2013 Est 2014 Est 2015 Est Actual GDP
The Big Problem: A Lack Of Growth
3
World real GDP growth estimates continue to be revised down
Source: IMF World Economic Outlook; October 2015
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Source: IMF World Economic Outlook, Epoch Investment Partners; October 2015
Global GDP growth 2009-2015 (est.) in USD
China's Contribution To Growth Has Been Substantial
China 46%
Other 54%
4
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
-5%
0%
5%
10%
15%
20%
25%
30%
Ma
r-9
9
Aug-9
9
Jan-0
0
Jun-0
0
No
v-0
0
Apr-
01
Sep-0
1
Feb
-02
Jul-0
2
De
c-0
2
Ma
y-0
3
Oct-
03
Ma
r-0
4
Aug-0
4
Jan-0
5
Jun-0
5
No
v-0
5
Apr-
06
Sep-0
6
Feb
-07
Jul-0
7
De
c-0
7
Ma
y-0
8
Oct-
08
Ma
r-0
9
Aug-0
9
Jan-1
0
Jun-1
0
No
v-1
0
Apr-
11
Sep-1
1
Fe
b-1
2
Jul-1
2
De
c-1
2
Ma
y-1
3
Oct-
13
Ma
r-1
4
Aug-1
4
Jan-1
5
Jun-1
5
No
v-1
5
Services
Construction
Industry
Source: National Bureau of Statistics of China, Epoch Investment Partners; Third Quarter 2015
Nominal Chinese growth by sector
Sharp Slowing Of Chinese Growth In Manufacturing And Construction
5
If you wish to ask a question, please click on the question mark icon located on the top of the screen. 6
China's Rebalancing Will Run Through 2025, And Will Likely Keep IP
And Capex Growth On A Secular Downtrend
-5%
5%
15%
25%
35%
45%
55%
Consumption Investment Government Net Trade
2000 - 2010
2010 - 2020
2020 - 2030
Changing composition of China's GDP
Source: McKinsey & Company; March 2016
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
2% Is The New 4% For Mature Economies
7
Growth In The
Work Force Productivity Real GDP
U.S. (23% of Global GDP) 1.6
+
0.7
=
2.3
Euro Area (24%) 0.8 0.6 1.4
Japan (6%) 0.3 0.3 0.6
Mature Economies1 1.1 0.9 2.0
China (13%)
-0.2 6.7 6.5
Developing Economies2 1.2 2.7 3.9
1. Includes all 28 members of the European Union as well as Iceland, Norway and Switzerland, Australia, Canada, Hong Kong, Israel, New Zealand, Singapore, South Korea, Taiwan
2. Includes China, India, Bangladesh, Cambodia, Indonesia, Malaysia, Myanmar, Pakistan, Philippines, Sri Lanka, Thailand, Vietnam, Argentina, Barbados, Bolivia, Brazil, Chile,
Colombia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Jamaica, Mexico, Peru, St. Lucia, Trinidad & Tobago, Uruguay, Venezuela, Algeria, Bahrain, Egypt, Iran, Iraq,
Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates, Yemen, Angola, Burkina Faso, Cameroon, Cote d’Ivoire, DR Congo, Ethiopia,
Ghana, Kenya, Madagascar, Malawi, Mali, Mozambique, Niger, Nigeria, Senegal, South Africa, Tanzania, Uganda, Zambia, Zimbabwe
Source: The Conference Board. 2015. The Conference Board Total Economy Database™, May 2015, http://www.conference-board.org/data/economydatabase/
GDP components
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
0
5
10
15
20
25
30
35
40Inflation Under 2% Inflation Under 1% Inflation Under 0%
Number of countries in sample (Now:34)
Source: OECD, Epoch Investment Partners, 2015
Low Rates (Almost) Everywhere
8
Number of OECD countries with low inflation
Countries
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
The List Of Countries With NIRPs Continues To Grow
9
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%Hungary Japan Europe Sweden Denmark Switzerland
Source: Bloomberg, Epoch Investment Partners; March 2016
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Technology: The New Macro Influencer
10
The driver of a capital-light world
The last, best hope for sustaining profit margins
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Structural Decline In Investment
11
-2%
0%
2%
4%
6%
8%
10%
12%
19
70
19
71
19
72
19
73
19
74
19
75
19
77
19
78
19
79
19
80
19
81
19
82
19
84
19
85
19
86
19
87
19
88
19
89
19
91
19
92
19
93
19
94
19
95
19
96
19
98
19
99
20
00
20
01
20
02
20
03
20
05
20
06
20
07
20
08
20
09
20
10
20
12
20
13
20
14
20
15
Profits Net Investment
Source: Federal Reserve Bank of St. Louis; 4Q 2015
Global capex sag
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Global Capex Sag
12
33%
25% 24%
22% 22% 21% 21%
20%
18% 17%
16%
14% 13%
9% 9% 9% 8% 8% 8%
7% 7% 7% 6%
3%
0% 0% 0%
5%
10%
15%
20%
25%
30%
35%
Labor-cost savings from adoption of advanced industrial robots (%, 2025)
Average global labor-cost savings: 16%
Source: BCG http:www.slideshare.net/TheBostonConsultingGroup/robotics-in-manufacturing; Minack Advisors. March 2016
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Technology: Impact On Capital Returns
Return on equity components
Technology will impact all three components
𝑃𝑟𝑜𝑓𝑖𝑡𝑠 (𝜋)
𝑆𝑎𝑙𝑒𝑠 (𝑠) = Profit Margin
𝑆𝑎𝑙𝑒𝑠 (𝑠)
𝐴𝑠𝑠𝑒𝑡𝑠 (𝑎) = Asset Utilization
𝐴𝑠𝑠𝑒𝑡𝑠 (𝑎)
𝐸𝑞𝑢𝑖𝑡𝑦 (𝑠.𝑒.) = Leverage
𝑅𝑂𝐸 = 𝜋
𝑠 ×
𝑠
𝑎 ×
𝑎
𝑠.𝑒. =
𝜋
𝑠.𝑒.
13
If you wish to ask a question, please click on the question mark icon located on the top of the screen. 14
Strong USD Has Been Painful For Companies With Overseas Sales
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
>50% Sales in U.S. All S&P 500 Companies >50% Sales Abroad
Earnings
Revenue
2015 S&P 500 (ex-energy) earnings and revenue growth
Source: FactSet, Epoch Investment Partners; March 2016
Y/Y Change
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
U.S. Dollar Strength Has (Finally) Started To Abate
-4.0%
-2.0%
0.0%
2.0%
4.0%Broad Trade Weighted U.S. Dollar Index
Source: Federal Reserve Bank of St. Louis; March 2016
15
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
U.S. Crude Production Is Slowing
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
2,000
4,000
6,000
8,000
10,000
12,000
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
US Crude Oil Production, 4 Week Avg. Ths Barrels Per Day (LHS) Oil Rig Count (RHS)
Source: Baker Hughes, EIA, Epoch Investment Partners; March 2016
16
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Economic Data Is Beginning To Surprise On The Upside
-80
-60
-40
-20
0
20
40
60
10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016
Economic Surprise Index in USD Economic Surprise Index in EUR
Source: Citi Economic Surprise Index; March 2016
Economic Surprise Index
17
Index
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Manufacturing PMI Back Into Expansionary Territory
30
35
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
ISM Manufacturing PMI
Source: Institute for Supply Management, Federal Reserve Bank of Saint Louis, Epoch Investment Partners; March 2016
Index
Institute for Supply Management Economic Activity Index
18
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Disposable Income Growth Is Outpacing GDP Growth
19
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan-0
7
Apr-
07
Jul-0
7
Oct-
07
Jan-0
8
Apr-
08
Jul-0
8
Oct-
08
Jan-0
9
Apr-
09
Jul-0
9
Oct-
09
Jan-1
0
Apr-
10
Jul-1
0
Oct-
10
Jan-1
1
Apr-
11
Jul-1
1
Oct-
11
Jan-1
2
Apr-
12
Jul-1
2
Oct-
12
Jan-1
3
Apr-
13
Jul-1
3
Oct-
13
Jan-1
4
Apr-
14
Jul-1
4
Oct-
14
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Real Disposable Personal Income
Y/Y Change
Source: Federal Reserve Economic Data, Epoch Investment Partners; February 2016
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Balance Shifting Slowly Back Towards Labor
20
52%
53%
54%
55%
56%
57%
58%
59%
60%
3%
5%
7%
9%
11%
13%
15%
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Recession Corporate Profits (Left Scale) Labor Compensation (Right Scale)
Source: Bureau of Economic Analysis, Epoch Investment Partners; Fourth Quarter 2015
Corporate profits vs. labor compensation, percent of GDP
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Cyclical And Defensive Industry Groups
21
90
95
100
105
110
115
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16
Cyclicals Defensives
1. Cyclicals include Automobiles & Components, Banks, Capital Goods, Diversified Financials, Energy, Insurance, Materials, Media, Semiconductors & Semiconductor Equipment,
Software & Services, Technology Hardware & Equipment, Transportation
2. Defensives include: Commercial & Professional Services, Consumer Durables & Apparel, Consumer Services, Food & Staples Retailing, Food Beverage & Tobacco, Health
Care Equipment & Services, Household & Personal Products, Pharmaceuticals Biotechnology & Life Sciences, Real Estate, Retailing, Telecommunication Services, Utilities
Source: Goldman Sachs, FactSet, S&P, Epoch Investment Partners; Indexed to 100 in January 1, 2014; April 2016
1 2
Performance relative to S&P 500
Cumulative Return
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
A Tale Of Two Halves: The Market
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
Source: Federal Reserve Bank of St. Louis; March 2016
Disappointing
manufacturing
data in China
sparks global
selloff
February 11: S&P,
oil and U.S. yields
hit 2016 low
Japan adopts NIRP
Strong U.S.
employment numbers
and an easing of
China concerns
ECB announces an
increase in their
bond-buying program
and cuts interest
rates
Fed Chair Yellen
delivers dovish speech
to the Economic Club of
New York
22
S&P 500 returns, first quarter 2016
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
A Tale Of Two Halves: S&P 500
Sector 1st Half of First Quarter 2nd Half of First Quarter Total First Quarter
(Dec-31 to Feb-11) (Feb-11 to Mar-31)
Telecommunication Services 6.4% 9.6% 16.6%
Utilities 5.7% 9.4% 15.6%
Consumer Staples -2.2% 7.9% 5.6%
Industrials -8.4% 14.6% 5.0%
Energy -9.0% 14.3% 4.0%
Materials -10.5% 15.8% 3.6%
Information Technology -11.5% 15.9% 2.6%
Consumer Discretionary -12.4% 16.0% 1.6%
S&P 500 -10.3% 13.0% 1.3%
Financials -17.4% 15.0% -5.1%
Health Care -11.9% 7.2% -5.5%
Source: Standard & Poor's, Epoch Investment Partners; April 2016
23
S&P 500 sector returns
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Health Care Multiples Compress
Sector December 31, 2015 March 31, 2016 Percent Change
S&P 500 16.10 16.61 3.2%
Health Care 16.00 14.90 -6.9%
Financials 12.66 12.40 -2.1%
Consumer Discretionary 18.14 18.09 -0.3%
Information Technology 15.97 16.33 2.2%
Industrials 15.52 16.02 3.2%
Consumer Staples 19.89 20.98 5.5%
Materials 15.34 17.16 11.9%
Telecom Services 12.30 13.93 13.2%
Utilities 15.44 17.71 14.7%
Energy 28.04 62.84 124.1%
Source: Standard & Poor's, Epoch Investment Partners; April 2016
Market aggregate Price / Earnings NTMA
24
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Returns: S&P Health Care Sector Index vs. S&P 500 Index
25
84
86
88
90
92
94
96
98
100
102
104
May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16
S&P 500 Index S&P Health Care Index
Source: Standard & Poor's Data via Bloomberg, Benchmarked to May 29 2015, Epoch Investment Partners; April 2016
Returns over the last several months
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
S&P 500 Sectors: 2016 Consensus EPS Growth And Revisions
26
-54.3%
-2.3%
2.3% 2.4% 2.5% 3.1% 3.3% 3.7%
6.3% 7.7%
12.0%
S&P 500 Bottom-Up EPS Expected Growth 2016
-66.2%
-19.2%
-7.9% -6.8% -5.7% -5.4% -2.8% -2.4% -2.0%
-0.7%
0.0%
S&P 500 Bottom-Up Operating EPS Revisions % Change
Source: Wolf Research Portfolio Strategy, Standard & Poor's, Compustat, Thomson Financial, FactSet; April 2016
September 30, 2015 to March 31, 2016
Upward
Downward
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Asset Allocation: Equities Offer Better Income Than Sovereign Bonds
27
4.35%
2.20%
3.87%
2.43%
1.41%
1.77%
0.56%
-0.05%
-1%
1%
2%
3%
4%
5%
U.K. U.S. Euro Japan
Dividend Yield 10-Year Government Bond Yield
Source: MSCI, Epoch Investment Partners; March 31, 2016
MSCI country and regional dividend yields vs. 10-year government bond yields
Select Countries 10-Year Bond Yield
U.S. 1.77%
Spain 1.36%
Italy 1.22%
France 0.48%
Germany 0.15%
Japan -0.05%
Switzerland -0.33%
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Where Will Free Cash Flows Go?
28
YES
NO
Free Cash Flow
Applications
Does return on
investment
exceed the cost
of capital?
Capital Reinvestment
• Acquisitions
• Internal Projects
Shareholder Yield
• Cash Dividends
• Share Repurchases
• Debt Reduction
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Dividends Buybacks
Buybacks And Dividends To Continue At A High Level
Billions
S&P 500 annual buybacks and dividends
1. Projection based on current run rate; Dividends through 6/30/15; Buybacks through 6/30/15;
Source: S&P; Epoch Investment Partners; 2Q 2015
1
29
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
$0
$50
$100
$150
$200
$250
$300
0
50
100
150
200
250
300
De
c-9
4
Jun-9
5
De
c-9
5
Jun-9
6
De
c-9
6
Jun-9
7
De
c-9
7
Jun-9
8
De
c-9
8
Jun-9
9
De
c-9
9
Jun-0
0
De
c-0
0
Jun-0
1
De
c-0
1
Jun-0
2
De
c-0
2
Jun-0
3
De
c-0
3
Jun-0
4
De
c-0
4
Jun-0
5
De
c-0
5
Jun-0
6
De
c-0
6
Jun-0
7
De
c-0
7
Jun-0
8
De
c-0
8
Jun-0
9
De
c-0
9
Jun-1
0
De
c-1
0
Jun-1
1
De
c-1
1
Jun-1
2
De
c-1
2
Jun-1
3
De
c-1
3
Jun-1
4
De
c-1
4
Jun-1
5
De
c-1
5
12-Month Average Number (Left) 12-Month Average Value (Right)
Global M&A Activity To Continue
30
Monthly global M&A deal value and number
Source: Strategas Research Partners; December 2015
# Of Deals Billions
If you wish to ask a question, please click on the question mark icon located on the top of the screen.
Summary
31
Low growth reflecting demographics, productivity and
slow down in China have made 2% the new normal for
real GDP growth
Technology is the new macro: enhancing productivity,
sustaining profit margins and reconfiguring capital
allocation choices
Dividend payers and free cash flow generators should
drive relative equity returns
The diminishing impact of monetary policy (QE) on
valuation metrics will foster greater interest in active
management
If you wish to ask a question, please click on the question mark icon located on the top of the screen. 32
A replay of this presentation will be available shortly on our website
www.eipny.com
Please feel free to contact us at 212-303-7200
Question & Answer Section