TD Epoch Global Absolute Return
At a glance
Our Global Absolute Return strategy targets attractive returns over time without assuming a high degree of capital risk by constructing a concentrated portfolio of global businesses we believe have superior risk-reward profiles. The portfolio consists of 25-35 securities reflecting the highest-conviction ideas of our investment team as appropriate for a concentrated portfolio. Companies are selected based on their ability to generate free cash flow and allocate it intelligently to benefit shareholders. Portfolio risk exposure is managed through the ability to allocate to cash using quantitative and qualitative asset allocation inputs to lessen the likelihood of loss of capital.
The Global Absolute Return Opportunity
Flexibility to invest across geographies and the market capitalization spectrum with access to attractively valued stocks regardless of artificial boundaries.
A concentrated portfolio, benefiting from proprietary research that drives our other U.S. and global strategies; a majority of positions are high convictions in our other strategies.
Cash used to preserve capital in down markets.
Portfolio construction framework designed to minimize unintended risks and reduce volatility, with cash used to preserve capital in down markets.
Blends individual bottom-up opportunities with top-down macroeconomic insights.
Portfolio diversifier offering low correlations with growth, value, and other accounting-based styles
Philosophy and approach
The bedrock of our philosophy is the belief that the best predictors of long-term shareholder return are growth in free cash flow and management's skill in allocating that cash.
We prefer cash flow to earnings for three reasons. First, cash flows are more reliable than reported earnings because they are harder to manipulate under accounting rules. Second, for innovative businesses which derive much of their economic value from intangible assets, reported earnings have become increasingly less relevant as a measure of value generation compared to cash flows. Third, businesses which appear to generate reported earnings but not cash flows are more likely to run into financial distress.
Capital allocation matters because decisions on how to allocate cash flows—whether to reinvest in order to grow a company, or to return capital to shareholders—can create or destroy long-term shareholder value.
The TD Epoch Global Absolute Return Strategy leverages the fundamental research carried out across all strategies managed by TD Epoch as the primary source for investment ideas. Our broader underlying U.S., non-U.S., and global strategies incorporate qualitative and quantitative analysis to identify potential investments, taking into consideration factors that can lead to growing cash flow. Stocks are then subject to rigorous fundamental research.
We develop an investment thesis as we assess the sources of the company’s long-term value creation and management’s ability to nurture it. We scrutinize management’s track record of allocating capital, looking for those with the discipline to use free cash flow to maximize return on investment, thereby creating shareholder value. While the portfolio is constructed from the bottom-up, we also consider the macro context while making decisions. Epoch’s Investment Policy Group, composed of senior members of our different strategy groups, provides insight and guidance on the global market environment as well as macroeconomic and industry trends.
We analyze risk as part of the portfolio construction process to monitor portfolio volatility and better ensure the delivery of the strategy’s goals. TD Epoch's Chief Risk Officer serves as a co-portfolio manager to ensure the investment team is aware of unintended biases and of the effect individual securities may have on the portfolio.
The portfolio is unconstrained with the exception of limiting individual position sizes to 10% at the time of purchase. Geographic and sector weights are largely a by-product of stock selection. Large divergences from the benchmark occur and their potential to influence the portfolio are monitored.