presented by epoch’s quarterly capital marketseconomic surprise index: u.s. economic surprise...

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 orinvestment 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 datesubmitted, 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, orestimates 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 andmay 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 securitiesincluding 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 ofsecurities selected for clients and not all securities selected for clients in the past year were profitable.

Epoch’s Quarterly Capital Markets Outlook

April 16, 2015 | The webinar replay will be available on our website: www.eipny.com

Michael Jin

Research Analyst

If you wish to ask a question, please click on the question mark icon located on the top of the screen.

P/E Expansion Has Driven Market Returns

P/E Expansion56.7%

Total Return72.6%

Dividends17.4%

P/E Expansion78.3%

Total Return 54.0%

EPS Growth6.3%

EPS Growth31.1%

Dividends12.3%

S&P 500 MSCI World

Numbers may not total due to roundingSource: Standard & Poor's; MSCI; Epoch Investment Partners; December 2014

Cumulative contribution to return 2012 through 2014

2


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: Secular Stagnation

3

World real GDP growth estimates continue to be revised down

Source: IMF World Economic Outlook; January 2015


160%

165%

170%

175%

180%

185%

190%

195%

200%

205%

210%

215%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

174%

World More Highly Levered Than Before Financial Crisis

4

Source: Geneva Reports on the World Economy, Deleveraging? What Deleveraging? Authors’ calculation based on OECD, IMF and national accounts data; October 2014

World debt ex-financials, percent of GDP

213%


Debt Crisis Resolution In 3D

5

DefaultU.S. – Mortgage defaults

early in crisis

Europe – Disallowed (except possibly Greece)

Deflation in Demand

U.S. – Government spending curtailed through sequestration

Europe – Only lever left for Europe was austerity

To overcome a debt crisis

you need

DevaluationU.S. – Dollar devalued

early in crisis

Europe – Constraints due to shared currency


-0.5%

0.5%

1.5%

2.5%

3.5%

4.5%

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15

France Switzerland Germany Japan U.S. Spain Italy

Secular Stagnation Fear Reflected In Sovereign Yields/QE Policy Continuation

6

Global 10-year bond yields

Source: FactSet, Epoch Investment Partners; April 7, 2015

Japan 0.36%Germany 0.16%

France 0.47%

Spain 1.18%

Italy 1.19%

U.S. 1.89%

Switzerland -0.06%


Deflation Fears Are Present in European Yields

-0.24%

-0.01%

1.69%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3M 1Y 3Y 5Y 7Y 10Y 30Y

Eurozone Switzerland Germany U.S. Treasuries

Source: Bloomberg; April 2, 2015

-0.015

7

U.S. and European yield curves


60

70

80

90

100

110

120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

U.S. Eurozone Japan U.K.

U.S. Growth Outlook Remains Better Than Rest Of World

8

Eurozone, U.S., Japan and U.K. industrial production

Source: FactSet, Epoch Investment Partners, Indexed to 100 in January 2005; February 2015

Index

U.K.

Eurozone

Japan

U.S.


-100

-80

-60

-40

-20

0

20

40

60

80

100Economic Surprise Index: U.S. Economic Surprise Index: Eurozone

Economic Surprise Indices

Positive economic surprises in Europe, negative surprises in the U.S.

Source: Citigroup Global Markets; April 2015

9

Index


95

100

105

110

115

120

125

130

Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15

Euro/USD Yen/USD GBP/USD AUD/USD CAD/USD

Dollar Strengthened Against Major Currencies

10

Index

Source: Federal Reserve, Epoch Investment Partners; Indexed to 100 July 1, 2014; April 10, 2015

Exchange rates in USD terms


-35%

-25%

-15%

-5%

5%

15%

25%

35%Local Return USD Return

Local currency and USD

Global Returns, First Quarter 2015

Source: MSCI, Epoch Investment Partners

11


10,159

5,115

2,674

1,994

$0

$2,000

$4,000

$6,000

$8,000

$10,000

WisdomTreeEuropeHedgedEquity

Deutsche X-trackers

MSCI EAFEHedged

Equity ETF

VanguardTotal Stock

Market

VanguardS&P 500

iSharesiBoxx $

InvestmentGrade

CorporateBond

WisdomTreeJapan

HedgedEquity

iSharesiBoxx $ High

YieldCorporate

Bond

iSharesCore MSCI

EAFE

iSharesCurrencyHedged

MSCI EAFE

UnitedStates Oil

Millions

Source: ETF.com

12

Top 10 ETF Net Flows

First Quarter 2015

If you wish to ask a question, please click on the question mark icon located on the top of the screen. 13

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Jan-

92Ja

n-93

Jan-

94Ja

n-95

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Jan-

12Ja

n-13

Jan-

14Ja

n-15

Base wages Total wages (inc. overtime/bonus)(Y/Y Change)

Source: Pavilion Global Markets (Bank of Japan Data via Bloomberg); February 2015

Abenomics Boosted Income Growth, But Consumers Are Skeptical

Cash earnings year-over-year

28

33

38

43

48

Income growth Value of assets

Japan consumer confidence survey –income growth, asset growth

(Index)

Source: Pavilion Global Markets (Cabinet Office via Datastream); February 2015


Pressure Building For Corporate Reforms

Japanese Government Pension Investment Fund

60%

12% 11%

5%

35%

25%

15%

0%0%

10%

20%

30%

40%

50%

60%

70%

Domestic Bonds Domestic Equities International Equities Short-term Assets

Old Target Allocation New Target Allocation

Source: BoJ, Japanese GPIF, Exane BNP Paribas

14


Chinese Growth Continues To Weaken

6%

7%

8%

9%

10%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Electricity: Total Consumption (Left) Railways: Cargo Delivery (Left) GDP Constant Price (Right)

Source: Pavilion Global Markets (National Bureau of Statistics of China Data via Datastream); February 2015

Y/Y Change Y/Y Change

15


Chinese Home Prices Declining Amidst a Glut of Inventory

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2011 2012 2013 2014 2015

Month / Month Year / Year

China home prices: 70 medium and large cities

Change

Source: Pavilion Global Markets (National Bureau of Statistics of China Data via Datastream); February 2015

16


Chinese Investors Moving From Housing To Stock Market

17

1,800

2,300

2,800

3,300

3,800

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

New Accounts (Left Scale) Shanghai Composite (Right Scale)

Source: Pavilion Global Markets; April 2015

Thousands Index


-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Jan-

14M

ay-1

4Se

p-14

Jan-

15

CPI Core CPI

All Eyes Are On Inflation

U.S. inflation: headline and core

Source: FRED; Consumer Price Index for All Urban Consumers: All Items, Percent Change from Year Ago, Monthly, Seasonally Adjusted, Consumer Price Index for All Urban Consumers: All Items Less Food & Energy, Percent Change from Year Ago, Monthly, Seasonally Adjusted; February 2015

18


Employment Rising Steadily at Around 200k a Month

19

Change in employment, all private employees

Source: Bureau of Labor Statistics; March 2015

All Employees: Total Private Industries (Left Scale)Change In Total Private Employment (Right Scale)

-1000

-800

-600

-400

-200

0

200

400

600

106,000

108,000

110,000

112,000

114,000

116,000

118,000

120,000

122,000


1.5

2.0

2.5

3.0

3.5

4.0

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Jan-

05A

pr-0

5Ju

l-05

Oct

-05

Jan-

06A

pr-0

6Ju

l-06

Oct

-06

Jan-

07A

pr-0

7Ju

l-07

Oct

-07

Jan-

08A

pr-0

8Ju

l-08

Oct

-08

Jan-

09A

pr-0

9Ju

l-09

Oct

-09

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12A

pr-1

2Ju

l-12

Oct

-12

Jan-

13A

pr-1

3Ju

l-13

Oct

-13

Jan-

14A

pr-1

4Ju

l-14

Oct

-14

Jan-

15A

pr-1

5

Openings (Left Scale) Quits (Right Scale)

Job Openings and Labor Turnover

Source: Bureau of Labor Statistics; Total U.S. Nonfarm Job Openings and Total U.S. Nonfarm Quits Seasonally Adjusted; January 2015

Precursor to wage growth?

20

Million Million


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Jul-8

5

Jul-8

6

Jul-8

7

Jul-8

8

Jul-8

9

Jul-9

0

Jul-9

1

Jul-9

2

Jul-9

3

Jul-9

4

Jul-9

5

Jul-9

6

Jul-9

7

Jul-9

8

Jul-9

9

Jul-0

0

Jul-0

1

Jul-0

2

Jul-0

3

Jul-0

4

Jul-0

5

Jul-0

6

Jul-0

7

Jul-0

8

Jul-0

9

Jul-1

0

Jul-1

1

Jul-1

2

Jul-1

3

Jul-1

4

Jul-1

5

Wage Inflation Has Yet To Materialize

1. Production and Non-Supervisory: Total Private IndustrySource: Federal Reserve Economic Data; March 2015

Average Hourly Earnings1Y/Y Change

21

Earnings growth elusive


Corporations Continue To Be Main Beneficiaries Of The Recovery

22

52%

53%

54%

55%

56%

57%

58%

59%

60%

3%

5%

7%

9%

11%

13%

15%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Recession Corporate Profits (Left Scale) Labor Compensation (Right Scale)

Source: Bureau of Economic Analysis, Epoch Investment Partners; Fourth Quarter 2014

Corporate profits vs. labor compensation, percent of GDP


Earnings Estimates Have Followed Oil

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$110

$115

$120

$125

$130

$135

$140

$145

$150FY 2014 (Left) FY 2015 (Left) FY 2016 (Left) WTI (Right)

Source: Standard & Poor's, Epoch Investment Partners; April 2015

S&P 500 earnings estimates and WTI oil price

23

Per Barrel

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1,250

1,350

1,450

1,550

1,650

1,750

1,850

1,950

2,050

2,150

2,250

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15

The Market Is Looking Through Current Earnings Pressure

S&P 500 next twelve months earnings multiples

Index

S&P 500

17x

16x

15x

14x

13x

12x

Source: Standard & Poor's, Yardeni Research, Epoch Investment Partners; April 2015

P/E


12

14

16

18

20

22

24

26

28

30

Energy Cons.Staples

Cons. Disc Health Care Materials S&P 500 Utilities Technology Industrials Telecom Financials

Last 12-months P/E Next 12-months P/E

S&P 500 Sector Valuations

Source: Standard & Poor's, FactSet, Epoch Investment Partners; April 2015

25

S&P 500 earnings multiples

Multiple


Utilities: Interest Rate Impact

Impact on Interest Expense: New debt will be a small fraction of overall debt; impact is limited

Companies took advantage of the low rate environment

Impact on Discount Rate: Stocks that have high dividends are shorter-duration than those that do not

V = Div / (r – g) Growth can overcome headwind of rising rates

26


Utilities for Shareholder Yield

0%

1%

2%

3%

4%

5%

6%

2006 2007 2008 2009 2010 2011 2012 2013 2014

MSCI World Utility Dividend MSCI World Dividend

Source: MSCI, Epoch Investment Partners; 2014

12-month dividend yield

27


Global M&A Activity Continues to Accelerate

Monthly global M&A deal value and number

$0

$50

$100

$150

$200

$250

0

50

100

150

200

250

30012-Month Average Number (Left) 12-Month Average Value (Right)

Source: Strategas; March 2015

#

28


$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

Dividends Buybacks

Buybacks And Dividends Continue To Be A Favored Use Of Cash

Billions

S&P 500 annual buybacks and dividends

Source: Strategas, Standard & Poor's; December 2014

29


Equities Offer Better Income Than Sovereign Bonds

3.81%

1.99%

3.13%

1.68%1.54%

1.87%

0.14%0.32%

0%

1%

2%

3%

4%

GBP USD EUR JPY

Dividend Yield 10-Year Government Bond Yield

Source: MSCI, Epoch Investment Partners; April 14, 2015

MSCI country and regional dividend yields vs. 10-year government bond yields

30


1. World is growing . . . slowly and unevenly 2. Diverging monetary policies reflected in currency movements3. Currency changes can reallocate growth but have little effect on aggregate

demand4. Currency changes more effective at reallocating inflation/disinflation 5. Dollar strength tightens financial conditions in a U.S. dollar-denominated

global financial system6. Regional attractiveness based on QE expectations:

Europe, Japan, U.S. & U.K.7. Emerging markets unattractive for the most part8. Free cash flow growth rates aided by technology as we move increasingly

toward a "capital light" world9. Companies generating free cash flow will continue to distribute a rising

proportion of that total to shareholders10. Ideal company to own – global champions with goods/services priced in

dollars and costs in local currency

Summary

31


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

32

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