Epoch Gbl Eq Shldr Yld Fd Uhgd (GSF0002AU) Report & Performance

Global equity markets were positive in July, with the Fund posting a return of 1.3% and the broader market returning 2.1% as measured by the MSCI World Ex Australia Index in AUD. A lower-than-expected June CPI report drove more traction for a soft-landing narrative that has been building all year. The month saw some slowing of the sharp big tech rally that has been fuelling market returns year to date on the back of a few high-profile earnings disappointments and valuation concerns in the cohort. The Fund’s low beta and low volatility exposure remained headwinds to return.

Absolute return was positive in almost all sectors, with financials contributing by far the most to performance. Banks drove performance for the sector, as the dissipation of concerns following the turmoil in the industry earlier this year continued to accelerate, and thus far the regulatory response to the crisis has remained measured. Furthermore, strong 2Q earnings for select holdings showcased resilient profitability and healthier-than-feared credit quality.

Relative return was negative for the month, as the Fund modestly lagged the broad market benchmark as well as the MSCI World High Dividend Yield Index. Communication services was by far the largest detractor to return, owing mostly to stock selection within diversified telecommunications companies. Recent scrutiny of major U.S. telecoms regarding the use of lead sheathed cables weighed on shares through the month. Conversely, financials contributed meaningfully to relative performance on the back of exposure to a few banks and insurance names.

Among the largest individual contributors to return were AbbVie and Iron Mountain. AbbVie is a global pharmaceutical company that develops and markets drugs in specialty therapeutic areas such as immunology, oncology, and virology, among others. Shares rose in response to a positive 2nd quarter earnings report which showed well-balanced growth across multiple therapeutic areas. In particular, the strong sales performance for AbbVie’s new immunology drugs Skyrizi and Rinvoq helped to alleviate concerns around biosimilar competition for blockbuster Humira.

Global equity markets rose during the quarter, though surging indexes painted a misleading picture, as market leadership continued to be astoundingly narrow. A handful of mega-cap tech stocks that have seen multiples blow out on the back of AI mania accounted for the majority of broad market return.

The Fund recorded positive absolute returns in most sectors, with Information Technology by far the biggest contributor, followed by Industrials and Consumer Discretionary. Information Technology was buoyed primarily by technology hardware and storage names and a semiconductor stock that benefitted from the AI hype tailwind. Returns in Industrials came largely from electrical equipment companies and trading companies and distributors. Consumer Discretionary performance was driven by a restaurant name that outperformed on strong earnings.

On a relative basis, the Fund finishing behind the broad MSCI World ex Australia benchmark, though it outperformed the MSCI World High Dividend Index. Communication Services was the largest detractor to relative returns due to stock selection, underperformance came primarily from exposure to a diversified telecommunications name that lagged along with very strong returns in two interactive media and services companies that are outside of our investable universe due to not paying a dividend. Information Technology was the next biggest drag, owing primarily to an underweight allocation, as the sector was the top performer in the index. Underexposure to a technology hardware storage and peripherals name that saw an outsized return for the quarter also detracted meaningfully.

Among the largest individual contributors to return were Broadcom and Restaurant Brands International. Broadcom is a designer and manufacturer of digital and analog semiconductors focused on connectivity. It also develops and maintains software for mainframe applications. Shares outperformed on continued support and backlog for enterprise network upgrade. Also fuelling the rise has been growing expectations surrounding needed investment in networking to support the nascent AI use cases surrounding generative AI. Broadcom returns cash to shareholders via an attractive dividend with a target of paying out 50% of free cash flow. The balance of cash generation is used to fund debt reduction, share repurchases, and/or accretive M&A. Restaurant Brands owns the Tim Hortons, Burger King, Popeye’s Louisiana Kitchen, and Firehouse Subs quick service restaurant chains.

Turmoil spilled into May, as First Republic became the 3rd U.S. bank failure this year. Despite uncertainty around a U.S. debt ceiling resolution and continued warnings of a looming recession, mega-cap tech stocks aggressively decoupled from the broader market, posting outsized returns driven by AI mania. The Fund’s high dividend yield and low beta were headwinds to Index relative returns during the month.

Absolute returns were negative for the month with the largest detractions coming from Financials and Materials, while holdings in Information Technology and Consumer Discretionary were positive contributors. Financials continue to face headwinds following banking failures, and banks and insurance companies primarily accounted for performance in the sector.

The negative return in Materials was largely driven by a chemicals company that came under pressure due to weaker than expected earnings and guidance. On a relative return basis, the Fund finishing behind the broad MSCI World ex Australia benchmark, though it outperformed the MSCI World High Dividend Index for the month. Communication Services was the largest detractor to relative returns, with the bulk of the underperformance attributable to very strong returns in two interactive media and services companies that are outside of the Fund’s investable universe due to not paying a dividend. Financials were the next largest drag on relative returns, owing mostly to holdings within banks and insurance companies.

Global equity markets were positive in April, as sentiment appeared to remain driven by investors betting on the timing of an end to interest rate hikes and the likelihood of a recession in the near term.

The banking turmoil seen in March looked to be easing through most of the month but crept back into headlines near month end. Absolute returns were positive in all sectors except for Information Technology, with the largest contributions coming from Health Care and Financials. Within Health Care, pharmaceuticals were the primary driver of return, while Insurance stocks were the main driver of return within Financials. On a relative return basis, the Fund finished roughly in-line with the broad MSCI World ex Australia benchmark and ahead of the MSCI World High Dividend Yield Index.

Consumer Discretionary was the largest contributor to relative return owing mostly to stock selection, with the most impact coming from having no position in an automobile stock that was pressured heavily during the month. The biggest detractor to relative return was stock selection within Information Technology, as exposure to a few underperforming semiconductor stocks was a drag on performance.

Despite shifting sentiment, equity markets finished strong in the first quarter of 2023. A steep, growth-led rally kicked the year off on the back of disinflation and a perceived rising likelihood of an economic soft landing. Hotter-than-expected January PPI numbers and a reassessment upwards of peak-rate expectations cooled sentiment in February, reversing the bull run. The end of the quarter was defined by the collapse of Silicon Valley Bank, Signature Bank, and Credit Suisse and subsequent intense scrutiny of industry peers. While the crisis drove significant outflows from financials, it also accelerated a rally in mega-cap tech stocks that buoyed markets into quarter end, with investor positioning signalling broad expectations for a dovish pivot by central banks in response to systemic risk in the banking system. broad expectations for a dovish pivot by central banks in response to systemic risk in the banking system.

All sectors except for Financials contributed to the Fund’s positive absolute return in Q1, with the largest contributions coming from Information Technology and Industrials. Semiconductors drove return within IT, as investors looked through current industry inventory digestion to a potential rebound in the second half of the year. Performance in Industrials was fuelled by air freight and logistics companies.

On a relative return basis the Fund lagged the broad MSCI World ex Australia benchmark, although it did finish ahead of the MSCI World High Dividend Yield Index. The biggest detractions to relative performance came from Information Technology, Consumer Discretionary, and Financials. An underweight sector allocation and underexposure to a technology hardware storage name that had an outsized return for the quarter fuelled underperformance in IT, which was the best performing sector in the benchmark. Stock selection primarily accounted for the relative return in Consumer Discretionary names, with the largest detractions coming from an automobile stock and a broadline retail stock that are outside our investable universe due to not paying a dividend. Banks accounted for most of the underperformance within Financials due to stock selection, as the Fund had overweight exposure to regional bank stocks that sold off heavily at quarter end in sympathy with the industry following the high-profile failure of a few banks with atypical balance sheets. We remain confident in our bank holdings, with the view that there is very low risk of systemic contagion and that the failures in the sector were driven by idiosyncratic risks at a few problematic banks. By comparison, portfolio bank holdings are well capitalized with low-cost, diverse depositor bases and conservative growth profiles.

Stocks fell in February, giving back some of January’s gains. The weakest results came from the Energy, Healthcare, and Consumer Staples sectors while the Materials, Financials, and Communications Services sectors provided modest gains. In January, U.S. inflation slowed for the seventh consecutive month, but not by enough to meet expectations. Despite the continued reduction in inflation, the Federal Reserve has indicated that a policy pivot is unlikely to occur in 2023.

Japan continued to see rising wages and inflation grew to 4.3% in January. Inflation continued to ease in the euro zone, PMI indicators rose, and consumer confidence increased. The European Commission published its Winter 2023 Economic Forecast indicated that the EU economy is likely to avoid a recession. Absolute returns were positive in all sectors except for Consumer Discretionary, with the largest contributions coming from Information Technology and Financials. Semiconductors drove performance in Information Technology, owing largely to one holding in particular that rose on a strong earnings report. Banks and insurers accounted for return within Financials, with contributions spread broadly across holdings.

On a relative performance basis, the Fund finished slightly ahead of both the broad market MSCI World ex Australia benchmark as well as the MSCI World High Dividend Index. Health Care was the largest contributor to relative return on the back of stock selection. The contribution came primarily from exposure to a biotech stock that was one of the top performers in the index for the month. Energy was the next biggest aid to relative performance due to stock selection within oil, gas and consumable fuel names. A majority of industry companies in the index struggled during the month, and the portfolio’s exposure to a handful of out-of-benchmark holdings that held up well aided relative return.