MainStay Epoch U.S. All Cap Fund

Transcription

1 4Q 2015 FUND COMMENTARY MainStay Epoch U.S. All Cap Fund Tickers A: MAAAX Investor: MAWNX B: MAWBX C: MAWCX I: MATIX Fund Overview Quarterly Highlights Objective The Fund seeks long-term capital appreciation. Strategy & Process The Fund invests in stocks of U.S. companies across market capitalizations and economic sectors to provide for a diversified portfolio. The investment team s fundamental research process selects companies that have the ability to generate free cash flow and allocate it intelligently for the benefit of shareholders. While the Fund invests in stocks of all market capitalizations, it has the flexibility to invest a significant portion of its assets in companies of one particular market capitalization category when the investment team believes such companies offer attractive opportunities. There can be no guarantee that investment objectives will be met. Investment Subadvisor After a selloff in the third quarter, global stocks recovered during the fourth quarter. U.S. and foreign stocks generally outperformed emerging markets. For the quarter, MainStay Epoch U.S. All Cap Fund modestly underperformed its benchmark, the Russell 3000 Index. Relative underperformance was driven by unfavorable stock selection within the energy, financials, and information technology sectors. These results were partially offset by strong stock selection within industrials. An underweight allocation to energy and utilities as well as meaningful position to the stronger performing information technology sector contributed to performance. The Fund remains focused on investing in companies with strong free cash flow and management teams who are committed to increasing shareholder return through intelligent capital allocation. To subscribe to this quarterly commentary or for additional information, visit: mainstayinvestments.com/insights 1

2 Team Overview Epoch Investment Partners, Inc. New York, New York Founded in April 2004 by experienced professionals, Epoch Investment Partners is a global asset management firm providing investment management services to investment companies, pension and profitsharing plans, other institutional clients, and high net worth individuals. Epoch has approximately $41.9 billion in assets under management. David Pearl Fund Manager since 2009, with 31 years of industry experience. Michael Welhoelter, CFA Fund Manager since 2009, with 29 years of industry experience. William Priest, CFA Fund Manager since 2009, with 50 years of industry experience. Market Overview and Outlook After a selloff in the third quarter, U.S. equities experienced a sharp recovery in October as worries over China s economic and market challenges eased. (These concerns returned at the start of 2016.) Markets lost ground amid heightened volatility in November and December as oil prices slid, but stocks managed to hold most of their gains. Large-cap stocks outperformed small-caps while growth indexes beat value indexes. Market breadth was poor, with a handful of large-cap consumer and technology stocks driving returns. Energy stocks had the weakest results by far. Interest rates rose somewhat during the period, anticipating the Federal Reserve s hike in the fed funds rate in December. The 10-year Treasury yield increased to 2.27% from 2.04%, and the two-year Treasury yield, a barometer of monetary policy, advanced to 1.05%, its highest level since early High-yield spreads widened. Growth in the U.S. economy cooled in the third quarter: GDP expanded at a 2.0% rate, down from a 3.9% gain in the previous quarter. The pace of manufacturing lost momentum, with December's Markit Purchasing Managers Index registering its weakest reading since Jobs growth picked up, however, as employers added 298,000 and 211,000 positions in October and November, respectively. Consumer spending was tepid early in the period, but sales for online retailers were strong in December. Light vehicle sales were brisk, hitting a new record. The Commerce Department s measure of corporate profits (adjusted for depreciation and inventories) stalled during the third quarter, dropping 1% from the preceding quarter and 5% from a year earlier. Much of the weakness arose from the energy sector. Meanwhile, share repurchases and dividends continued to grow, reaching a record $935 billion for the full year for S&P 500 companies. The global economy is likely to eke out only modest growth in the coming year, restraining corporate revenue. Self-sustaining recoveries are visibly underway in the U.S. and Europe. Offsetting that, however, is China's slowdown in economic activity, primarily in the manufacturing and construction sectors. China has been responsible for nearly half of the world's growth since 2009, and its loss of momentum casts a long shadow. The accumulation of debt is another drag on economic activity. What little growth has been achieved since the Global Financial Crisis has arguably been funded by ever higher levels of debt, with sovereign debt in particular growing at nearly a double-digit rate between 2007 and Additionally, a strong U.S. currency has increased the burden for countries with debt denominated in dollars, largely represented by the emerging market contingent. Another expectation is the exponential growth of new, disruptive technologies, and new combinations of those technologies will have a profound influence on corporations. For some, it will make their business models obsolete. For many others, however, taking advantage of big data, artificial intelligence, robotics, and the sharing economy will be the path to maintaining strong profit margins. In our view, profitability will be challenged in a world where top-line growth is hard to come by and the big re-rating of equities is over. The broad-based expansion of valuations that drove outsized market gains in was not present in The quantitative easing that fueled the expansion is finished in the U.S. and U.K. And while the euro zone and Japan may continue to pursue highly accommodative monetary policies, their influence on equity valuations has waned. In this environment, we believe the growth of free cash flow growth rates will differentiate the winners from the losers. 2

3 Portfolio Composition Common Stocks Cash and Other Assets (less liabilities) Top Sectors Information Technology Financials Health Care Consumer Discretionary Industrials Top Ten Holdings Apple Inc. Microsoft Corp. Visa, Inc. Boeing Co. American International Group, Inc. Alphabet, Inc. UnitedHealth Group Inc. Allergan PLC General Electric Co. Oracle Corp. 95.4% % % Portfolio data as of 12/31/15. Percentages based on total net assets and may change daily. Fund Performance and Positioning For the quarter, MainStay Epoch U.S. All Cap Fund modestly underperformed its benchmark, the Russell 3000 Index. While security selection was positive in the industrials, materials, and utilities sectors, selection in other sectors more than offset that advantage. Certain holdings within financials, information technology, energy, and consumer staples detracted from relative results amongst others. Nine of 10 sectors of the Index experienced positive returns for the period. The materials sector was the best performing area up 8.9% for the period while the energy sector was down 1.1%. Against this backdrop, the Fund s underweight allocation to energy also contributed to relative results. Among the leading detractors from performance was Seagate Technology. Shares of Seagate declined after the company reported weaker revenue for its fiscal first quarter and its overall operating margin declined primarily on lower sales of high capacity enterprise drives. The cyclical slowdown in the industry has been steeper than generally anticipated. Still, Seagate's core hard drive business remains strong and operating margins should improve as the company completes its acquisitions of Dot Hill Storage and Samsung's hard drive business. Within energy, shares of Anadarko Petroleum continued to fall in concert with the general decline in the energy sector; investors were also disappointed when the company made a bid for its rival, Apache, although the offer was subsequently withdrawn. Despite recent weakness, we believe that the company's asset quality, diversification, and cost structure should result in above average returns on capital relative to many peers over the long-term. 3

4 Fund Statistics Total Net Assets P/E Ratio (1-Yr. Estimated) P/B Ratio Return on Equity Weighted Average Market Cap. ($) Median Market Cap. ($) Number of Holdings Annual Turnover Rate (%) Fund Expenses Class A* Investor Class Class B Class C Class I $646.2M B 27.16B Gross/Net 1.13% Fund Performance and Positioning (continued) Microsoft was among the leading contributors to relative performance. The company continues to benefit from evidence that it is successfully transitioning its business model to better compete in a world that will be dominated by mobile and cloud-based computing. In the industrial sector, General Electric's management team appears to be getting some credit for progress made toward transitioning its business model. As part of its strategy, the company hopes to achieve a targeted earnings mix going forward of 75% from its industrial businesses and 25% from GE Capital, the latter consisting mainly of financing activity that supports GE's industrial business. The transformation will result in a less capital intensive, higher asset quality company. Recent organic growth and margin expansion trends have been positive. In the information technology sector, Alphabet Inc.'s third-quarter results came in ahead of expectations including an increase in its operating margin and revenue growth in mobile advertising. Encouragingly, the company now appears to be more focused on optimizing its capital allocation policies and recently announced a plan to return more than $5 billion in capital to shareholders through a share repurchase plan. * For the DCIO/RIA markets, Class A shares are available only to existing Retirement Plans whose Fund schedules included Class A shares prior to September 30, The P/E Ratio (price-to-earnings) denotes the weighted average of all the P/Es of the securities in the Fund's portfolio. The P/B Ratio (price-to-book) is the weighted average of all the P/Bs of the securities in the Fund's portfolio. Return on Equity (ROE) is the weighted average of all the ROEs of the securities in the Fund's portfolio. ROE is calculated by dividing net income by book value. The Annual Turnover Rate is as of the most recent annual shareholder report. Class I shares are generally available only to corporate and institutional investors. Average Annual Total Returns Period ended 12/31/15 Class A (1/2/04) Class I (1/2/91) Russell 3000 Index (NAV) (max. 5.5% load) (no load) **Inception date used is for Fund Inception (1/2/91). 1 Yr 2.63% Yrs 14.37% Yrs 10.77% Yrs 5.67% Since Inception 8.96% ** Average annual total returns shown include the change in share price and reinvestment of dividends and capital gain distributions. Performance for Class A shares includes the historical performance of Class I shares from inception (1/2/91) through 12/31/03 adjusted to reflect the applicable sales charge (or CDSC) and fees and expenses. Effective 6/29/09, the Fund's investment objective, principal investment strategy, and investment process were changed. Performance data quoted represents past performance. Past performance is no guarantee of future results. Due to market volatility, current performance may be less or higher than the figures shown. Investment return and principal value will fluctuate, so that upon redemption, shares may be worth more or less than their original cost. For performance information current to the most recent monthend, visit our web site at mainstayinvestments.com. 4

5 The opinions expressed are those of Epoch Investment Partners, Inc. as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment. Before you invest Before considering an investment in the Fund, you should understand that you could lose money. Growth-oriented common stocks and other equity type securities (such as preferred stocks, convertible preferred stocks and convertible bonds) may involve larger price swings and greater potential for loss than other types of investments. The principal risk of investing in value funds 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. The Russell 3000 Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies, representing approximately 98% of the investable U.S. equity market. Index results assume the reinvestment of all capital gain and dividend distributions. An investment cannot be made directly into an index. For more information about MainStay Funds, call 800-MAINSTAY ( ) 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 federally registered advisors to subadvise the Funds. Epoch Investment Partners, Inc. is unaffiliated with New York Life Investments. MainStay Investments is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 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, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC All rights reserved. Not FDIC/NCUA Insured Not a Deposit May Lose Value No Bank Guarantee Not Insured by Any Government Agency Multi-Boutique Investments Long-Term Perspective Thought Leadership mainstayinvestments.com MSEUAC02b-01/16