Managing Downside Participation: Global Equity Shareholder Yield

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2018 was an eventful year to say the least. Markets started the year enthusiastically, hitting record highs in January as momentum spilled over from the previous year. However, the record-low volatility witnessed in 2017 quickly vanished and 2018 witnessed many turns in the market. While volatility was persistent throughout the year, the market remained in positive territory for most of the first three quarters driven largely by technology and e-commerce companies. The broader market flirted with record highs again in September until concerns about slowing economic growth, tighter monetary policies and trade tensions between the U.S. and China dramatically wiped out earlier gains (and then some). The year concluded with the largest annual decline since 2008 in USD.

On a macro level, the U.S. economy continued to exhibit strength, helped by robust consumer confidence and spending. The Federal Reserve raised short term interest rates four times in 2018. Eurozone GDP slowed, attributed in part to a slowdown in German auto production as a result of regulatory changes and a stagnant Italian economy. The European Central Bank cut its GDP and inflation forecasts and ended its bond buying program, though it will reinvest maturities for an unspecified period of time. France witnessed violent protests against president Macron’s economic policies, and the U.K. government was in turmoil over Brexit.

Figure 1: 2018 Market Backdrop

Source: Epoch Investment Partners; MSCI, Inc. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.

These challenges translated to a tough year for the MainStay Epoch Global Equity Yield Fund. While we were not immune to the pressures on the market, the Fund did perform as we would expect given the market backdrop. Challenges earlier in the year stemmed from a momentum-driven market dominated by technology and e-commerce companies that left much of the excitement outside of our investible universe. We continued to focus on identifying companies that consistently generate growing free cash flow and return cash to shareholders. During the more recent period of increased volatility and downward pressure on the market in the fourth quarter, the Fund delivered limited downside participation. Lower volatility and downside participation are persistent outturns of our investment process given our focus on companies that consistently pay dividends and our portfolio construction process that emphasizes diversification. Dividends are always positive contributors to returns. As a result, dividend paying companies have historically exhibited lower volatility than the overall market, especially when married with fundamental analysis to help ensure the sustainability of the cash distributions. This highlights the importance of active management.

Market movements will continue to impact short-term results as investors react to economic and political events. We remain confident in the ability of our holdings to continue to generate and grow free cash flow. Over the long-term, we believe the portfolio will benefit from its focus on companies with strong fundamentals, solid business models and consistent cash distributions to shareholders. We seek to capture the long-term drivers of equity market returns through a diversified portfolio of high-quality companies with the consistent ability to return a growing amount of cash to shareholders.

Managing Downside Participation

The Fund has demonstrated limited downside participation in periods of market stress. Defining a strong down market as a decline greater than 5%, the portfolio has outperformed the market 96% of the time by nearly 4% on average as measured by rolling 3-month periods in USD. As mentioned earlier, dividends are always positive contributors to equity market returns. This is one of the key reasons we would expect the downside participation to remain a characteristic of our style of investing. This is further supported by our rigorous fundamental analysis to ensure the sustainability of the dividends and the portfolio risk controls that limit the amount of income contribution from any one security to ensure the portfolio level delivery of a consistent cash dividend yield.

Recent years have witnessed very few dramatic pullbacks within the market. As a result, the portfolio had few opportunities to demonstrate its strong defensive characteristics. However, in 2018 we witnessed four periods where the rolling 3-month returns were down 5%+ as seen in Figure 2. Three of these periods came in the fourth quarter driven by extreme market conditions in October and December. In both months, the defensive characteristics of the portfolio were evident. The one misleading period ended in April of 2018, when the Fund underperformed in a down market. When dissected into the portions of strong markets and weak markets, the portfolio performed as expected. During the stresses felt in late January into early February, the Fund was more defensive providing downside participation; however, when the market rebounded from its February lows, the rally was driven by the technology sector and the portfolio did not keep pace. Despite the rally, the markets ended down for the month of February and we underperformed. February was the anomaly during the 3-month period. The Fund performed in-line with expectations during the market selloff in March and modest rebound in April. The 3-month period ending April 2018 was the only instance where the downside capture ratio exceeded 100%. The fourth quarter is more representative of the downside participation we have historically exhibited within the portfolio. The more defensive sectors outperformed the sectors where growth expectations were coming down as investors started to become more concerned about slowing economic growth, tighter monetary policies and trade tensions between the U.S. and China. During the fourth quarter the Fund outperformed the broader market index by approximately 545 basis points.

Figure 2: Downside capture ratio when 3-month drawdown on MSCI World was greater than 5%

Source: Epoch Investment Partners, New York Life Investments, Morningstar. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index. Data represents the MainStay Epoch Global Equity Yield Fund – Class A shares, shown in USD. Inception date of the Fund’s A share class is August 2, 2006. Downside capture ratio is calculated by dividing the manager’s returns by the returns of the index during the down market. An investment manager who has a down market ratio of less than 1 has outperformed the index during the down market. (Source: Investopedia) (in other words: lower is better)

Average Annual Total Returns

(As of December 31, 2018)

MainStay Epoch Global Equity Yield Fund

Share Class

1 year

3 years

5 years

10 years

Class A (NAV)





Class A (max. 5.5% load)





Class I (no load)





Returns represent past performance which is no guarantee of future results. Current performance may be lower or higher. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. Performance reflects a contractual fee waiver and/or expense limitation agreement in effect through 2/28/20, without which total returns may have been lower. This agreement renews automatically for one-terms unless written notice is provided prior to the start of the next term or upon approval of the Board. Visit for the most recent month end performance.

Total annual operating expenses are: Class A: 1.14%, Class I: 0.89%. Net annual operating expenses are: Class A: 1.09%, Class I: 0.84%.

Average annual total returns include the change in share price and reinvestment of dividends and capital gain distributions. Effective after the close of business 11/13/09, Epoch Global Equity Shareholder Yield Fund was reorganized as MainStay Epoch Global Equity Yield Fund. Performance for Class A and I shares reflects the performance of the Class P and Institutional Class shares, respectively, of Epoch Global Equity Shareholder Yield Fund (which was subject to a different fee structure) adjusted to reflect sales charges, but not fees and expenses; absent these adjustments, performance may have been lower. Class I shares are generally available only to corporate and institutional investors.

The information and opinions contained herein are for general information use only. New York Life Investments does not guarantee their accuracy or completeness, nor does New York Life Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

Before You Invest:

Before considering an investment in the Fund, you should understand that you could lose money.

The principal risk of investing in value stocks is that the price of the security may not approach its anticipated value. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. These risks may be greater for emerging markets.

Dividends fluctuate and are subject to change. There is no guarantee they will continue to be paid. While dividends may cushion returns in down markets, investments are still subject to loss of principal amount invested.

Morgan Stanley Capital International (MSCI) World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity performance of developed markets.

For more information about MainStay Funds®, call 800-624-6782 for a prospectus or summary prospectus. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus or summary prospectus contains this and other information about the investment company. Please read the prospectus or summary prospectus carefully before investing.

New York Life Investments engages the services of Epoch Investment Partners, Inc., an unaffiliated, federally registered investment advisor. New York Life Investments is a service mark and name under which New York Life Investment Management LLC does business. New York Life Investments, an indirect subsidiary of New York Life Insurance Company, New York, New York 10010, provides investment advisory products and services. The MainStay Funds®  are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.


Epoch Investment Partners, Inc.

Epoch’s investment approach is designed to uncover opportunities that others may miss. In our view, growth of free cash flow, and the intelligent use of that cash flow, represent the best predictor of long-term shareholder return. We look for strong company management with

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