Our timely perspectives on key global economic forces and the long-term investment strategies to consider, highlighted by the Monthly Market Monitor.
The Upcoming Debt Limit Debate: What Tax and Entitlement Changes are in Store?
Andrew H. Friedman, May 2013
The United States government has once again hit its borrowing limit. Congress had authorized the federal government to borrow $16.4 trillion and, as of the end of 2012, the government had done so. Congress subsequently extended borrowing authority through May 18, 2013.
Consider paying a premium for municipal bonds
Municipal Insight Committee, May 2013
Municipal (muni) bond investors generally prefer to purchase muni bonds at or near par value. But with interest rates at historically low levels, most existing muni bonds available for purchase are priced well above their par value. Muni bond investors may be overlooking these premium bonds because of a misperception that if they pay the premium, their returns will be lower at the bond maturity.
What’s behind California’s budget improvement – and will it last?
Municipal Insight Committee, May 2013
The recent combination of an improving California economy and higher state tax rates under Proposition 30 is expected to generate additional revenues and budget surpluses, potentially allowing the state to reduce its “Wall of Debt” in the short term.
Reversing Quantitative Easing
Richard Bernstein, April 2013
The Fed is likely to lag the markets, as they do in most cycles. The markets will probably anticipate the Fed reversing QE. The Fed will surprise few investors.1
1 The Fed - The U.S. Federal Reserve. QE - Quantitative Easing, which is a monetary policy intended to stimulate the economy.
Income Market Insight
Payson F. Swaffield, April 2013
What a difference a quarter makes
In show business, there’s an old expression that it is easier to follow a good act than a bad one. The first quarter of 2013 showed that this saying doesn’t necessarily carry over to the fixed-income markets.
Portfolio Manager Viewpoints: Currency Allocation and Why It Makes Sense Now
John R. Baur, April 2013
John Baur, co-portfolio manager of Eaton Vance Diversified Currency Income Fund, shares his views on why an allocation to foreign currencies has both potential strategic and tactical advantages, such as reducing portfolio volatility, hedging price inflation and providing an income stream.
Economic Market Insight
Thomas Luster, April 2013
The U.S. Federal Reserve (the Fed) has a plan to rebuild economic growth. Likewise, Europe had a plan to deal with its debt crisis until a small bank on the tiny island of Cyprus knocked the plan into disarray (or to the policymaking canvas, if you will). What happens if the sluggish U.S. recovery gains momentum and the bond market lands a similar blow to the Fed’s monetary policy game plan?
Equity Market Insight
Duncan W. Richardson, April 2013
The first three months of 2013 highlighted the equity market’s ability to frequently defy investor expectations. In particular, investors who expected the U.S. market to falter early in the year were likely taken aback by the strength of its first-quarter rally. However, by quarter-end, investors who had maintained or perhaps increased their equity exposure in the face of potential headwinds may have been well-rewarded for their fortitude.
Eaton Vance Viewpoints: Timothy Atwill on “Systematic Alpha” Investing
Timothy Atwill, March 2013
Timothy Atwill, CFA, Ph.D., Director – Research and Strategy for Parametric, discusses Parametric’s innovative investment approach — known as “systematic alpha” — and its application to emerging-market investing.
Congress Avoids a Government Shutdown; Up Next, the Debt Limit
Andrew H. Friedman, March 2013
Congress cleared another hurdle last week, passing a bill (a "continuing resolution") to keep the federal government operating for six months past its current funding deadline of March 27.
‘80’s Bull Redux
Richard Bernstein, March 2013
Investors often remember bull markets as days of wine and roses. However, those fond memories are largely based on the latter stages of a bull market during which investors are convinced that there is indeed a bull market under way and that it will never end. They seem to forget that the majority of a bull market is typically characterized by fear and indecision.
Examining the Impact of Sequestration
Thomas Luster, March 2013
• In our view, sequestration will have a temporary, but measurable impact on U.S. economic growth
• We believe markets have largely discounted the effects of sequestration’s spending restraint
• Despite slower spending growth, deficits are projected to expand again after 2017
How Banks Can Cope With New OCC Rules for Investment Securities
Jim Evans, March 2013
Effective January 1, 2013, new guidelines from the Office of the Comptroller of the Currency (OCC) specify that banks may no longer rely solely on ratings issued by external credit rating agencies to determine if a security is “investment grade.”
Something Wicked This Way Comes: What to Expect When Interest Rates Return to Normal
Bill Hackney, March 2013
The extraordinarily low interest rates of the recent past occurred as a result of a severe financial crisis and recession. The economic effects of that crisis and recession are quickly fading. Yet, short-term interest rates remain near zero and long-term rates hover near historic lows, providing little or no premium to compensate bondholders for inflation or credit risk.
The Sequester Cuts Take Effect: Now What Happens?
Andrew H. Friedman, March 2013
On March 1, the government spending cuts known as the “sequester” took effect without any action from Congress. Below I discuss what those cuts mean and what is likely to follow as Congress wrestles with additional deadlines.
Hexavest in Focus
Vital Proulx, February 2013
In August 2012, Eaton Vance finalized an exciting new partnership with Canadian money manager Hexavest Inc., acquiring a 49% minority interest in the firm. Learn about Hexavest and the firm’s innovative, established approach to managing portfolios.
Why a Diversified Approach to Currencies Makes Sense
Michael A. Cirami, Eric Stein, John R. Baur, Bradford Godfrey, Matthew F. Murphy, Jr.; February 2013
Many U.S.-based investors are overexposed to the U.S. dollar and may benefit from diversification into foreign currencies. An allocation to global currencies has both potential strategic and tactical advantages, such as reducing portfolio volatility, hedging price inflation, and providing an income stream.
Still Poised On a Cliff: Wealth Transfer Opportunities After the Fiscal Cliff Compromise
Andrew H. Friedman, February 2013
The fiscal cliff compromise included a number of favorable estate and gift tax provisions. However, the compromise also left Congress with a short-term need to address a number of other deadlines and a lingering desire to enact comprehensive tax reform. Addressing those matters is likely to lead to further tax changes, some of which might restrict current gifting techniques.
Outlook remains positive for municipal bonds — but some risks remain
Municipal Insight Committee, January 2013
On the heels of a dramatic rebound in 2011, municipal bonds (munis) generated solid results in 2012, outperforming U.S. Treasuries and other government-backed bonds such as agency debentures and agency-backed mortgage securities. 1
1 While certain U.S. government-sponsored agencies may be chartered or sponsored by acts of Congress, their securities are neither issued nor guaranteed by the U.S. Treasury.
It’s Time to Be Opportunistic, Flexible and Focused in the Credit Markets
Kathleen Gaffney, January 2013
It is critically important to understand the risks associated with an allocation to traditional fixed-income strategies in today’s market environment. Investors utilizing core bond solutions may believe they are reducing the risk in their portfolio by moving from equities to traditional fixed-income securities. But due to the possible depreciation in bond prices once rates rise, an allocation to traditional fixed-income strategies may offer high risk with lower or no return.
Beyond the Fiscal Cliff
Richard Bernstein, January 2013
Richard Bernstein Advisors LLC share some considerations for investors as they plan for 2013.
Still Poised On a Cliff: The Prognosis for 2013 Congressional Action and its Effect on Investors
Andrew H. Friedman, January 2013
At the eleventh hour on New Year’s Eve, Washington negotiators reached a compromise to avoid the “fiscal cliff”—the looming combination of tax increases and spending cuts that threatened to throw the country back into recession.
Portfolio Manager Viewpoints: Why Dividend Stocks Now?
Judith A. Saryan, January 2013
In a recent interview, Judith A. Saryan, coportfolio manager of three Eaton Vance dividend funds, shared her views on why dividend investing remains a compelling long-term strategy — particularly in the wake of the budget deal that was struck to avert the “fiscal cliff.”
13 for ‘13
Richard Bernstein, December 2012
A list of investment themes that we feel are critical to the coming year.
Portfolio Manager Viewpoints: Kathleen Gaffney, CFA, on Multisector Bond Strategies
Kathleen Gaffney, December 2012
Kathleen Gaffney joined Eaton Vance in October 2012 as vice president and codirector of Investment Grade Fixed Income. In her new position, Kathleen will manage investment portfolios drawing upon the analytical resources of Eaton Vance’s entire income investment organization. She has 28 years of investment experience as a portfolio manager and trader. Kathleen shares her thoughts on joining the Income Group and her plans for building multisector strategies that draw upon Eaton Vance’s expansive capabilities.
Bill Hackney, December 2012
When economics and politics intersect, you often find unintended consequences. Who would have guessed four years ago that the prime beneficiary of the government’s fiscal and monetary stimulus would be the investor class, not the middle class? Despite great efforts by the Obama administration to create jobs and heal the housing market, corporate profits and stock prices recovered far in advance of employment, wages and housing prices.
Portfolio Manager Viewpoints: Same Challenges, Different Year
Payson F. Swaffield, Thomas M. Metzold, Scott H. Page, Eric Stein; December 2012
As 2012 draws to a close, it’s fair to say that much has changed over the past year. With the U.S. elections firmly in the rear view mirror, a major element of uncertainty that has hung over the investment landscape has been resolved. Many global markets are on track to deliver solid returns this year, after a lackluster 2011.
A World Turned Upside Down: Emerging-Market Growth Leads Tectonic Economic Shift
Mark Venezia, John R. Baur, Eric Stein, Michael A. Cirami, Matthew F. Murphy, Jr.; November 2012
Second in a three-part series on the reordering of the world’s economic hierarchy.
The Election Ends and the Lame Duck Begins
Andrew H. Friedman, November 2012
Billions of dollars spent, thousands of negative advertisements aired, scalding campaign rhetoric, a bitterly polarized electorate – and we ended up where we started: President Obama in the White House, a Democratic-led Senate and a Republicanled House of Representatives. Four more years of the same divided government.
Opportunity Knocking: The long-term case for equity investing
Lew Piantedosi, Yana Barton, Matthew Navins; September 2012
Equity investors have experienced two severe bear markets since the start of the millennium, leaving many shell-shocked and still unwilling to commit significant sums of capital to equities. First, investors had to deal with the bursting of the technology bubble from 2000 to 2002 followed by a global credit storm that shook the foundation of the financial system from 2007 to 2008. Looking back at one of the worst periods in stock market history and frequent bouts of volatility since then, it’s easy to understand why many individuals are still reluctant to “get back in the water,” their hesitancy compounded by the strong run stocks have experienced since their March 2009 lows. While we staunchly believe in the importance of being positioned for uncertainty, we also believe in the need to be positioned for opportunity. Looking ahead, we feel that the future opportunity in equities remains quite bright for long-term investors. In this paper, we highlight a number of factors that we believe have created a supportive backdrop for equities and which may lead to attractive performance going forward.
Congress Adjourns Until November: Election and Lame Duck Session Update
Andrew Friedman, September 2012
Well over a year ago, I predicted that President Obama has the better chance of recapturing the Independent vote and winning the 2012 presidential election. I continue to hold that view.
The Roth Conversion Opportunity: Investing in a Rising Tax Environment
Andrew Friedman, September 2012
The Bush tax cuts—lower tax rates on all Americans that have been in effect for the past decade—are scheduled to expire at the end of 2012. President Obama has said he will veto any further extension of the Bush tax cuts for upper income families. If the President carries through on that threat, then either the Republicans must accept a compromise that raises taxes only on the affluent or watch the cuts expire and taxes go up for everyone. Under either scenario, affluent taxpayers will face higher taxes in 2013.
Municipal Bond Research – Putting Together the Mosaic: Putting Bankruptcies and Unfunded Municipal Pensions in Perspective
Eaton Vance Municipal Insight Committee, September 2012
Headline: Pension Fund Liabilities Threaten to Swamp Governments
Funded pension ratios across state and local governments have steadily drifted downward over the past decade from 100% in 2001 to 75% in 2011, according to the Center for Retirement Research (CRR) at Boston College.
Investing in the Wake of the “Great Moderation:” Floating-Rate Loans as a Strategic Allocation
Scott Page, Craig Russ, Christopher Remington; September 2012
“Financial epochs come and go on little cat feet. Nobody issues a press release to herald their arrival. And no one rings a bell to toll their departure.”
- Jim Grant, Grant’s Interest Rate Observer, May 2, 2008
It has been four years since Jim Grant sounded the above death knell for the 25-year era of low interest rates and low volatility commonly known as the Great Moderation. But the nature of the new epoch that replaces it—if we have indeed entered one—still isn’t clear. Many continue to believe that the large-scale accommodative policies of the U.S. Federal Reserve and other central banks are laying the groundwork for another era of higher interest rates and inflation, as Grant alluded to at the time. But others, including the Fed, believe that the fragility of the recovery makes the possibility of a Japan-style deflationary decade equally worrisome.
The End of Mercantilism and Other Coming Attractions
Thomas Shively, Justin Bourgette, Jeffrey Rawlins, Dan Strelow; August 2012
Almost a year and a half has passed since our last major white paper, All Along the Watchtower, and an update seems particularly appropriate. The Watchtower was itself a sequel to the October 2005 paper, Pension Management in A World Out of Balance1, in which we first raised concerns about major global imbalances that we felt were afflicting the world economy in increasingly adverse and unsustainable ways. The heart of the problem we identified as a global monetary system that did not facilitate orderly re-balancing of savings versus spending, and of competitiveness, across nations and regions of the world over time. In fact, the pegged and unified currencies prevalent among major trading partners, particularly the yuan/dollar and the euro, actually prohibited re-balancing by not allowing currencies and relative prices to adjust sufficiently over time. Partly as a result, trade and savings surpluses were sustained in places like China, Germany, and even Japan over many years, and helped to fund asset and debt bubbles in the U.S., southern European countries, and elsewhere. In turn, policymakers in deficit countries did little to slow, and in some cases actually encouraged, these bubbles in a push for growth at any cost.
1 Authored by Thomas Shively, Dan Strelow and Jeffrey Rawlins
Portfolio Manager Viewpoints: Navigating Fiscal Chaos
Richard Bernstein, Thomas Luster, Thomas Shively, Eric Stein; August 2012
The “fiscal cliff” describes an abrupt slowdown in economic growth that could result from a worrisome combination of substantial increases in tax rates and federally mandated spending reductions aimed at cutting the budget deficit by $1.2 trillion. Against this backdrop, we recently gathered four Eaton Vance investment professionals to share their perspectives on the possible investment implications and to caution investors not to make wholesale changes to their portfolios in the short term.
Investing in a Rising Tax Environment: Consider tax-managed mutual funds and other professionally managed tax-advantaged investment strategies.
Duncan W. Richardson, August 2012
When it comes to investing, we believe the most important thing is determining not what you make, but what you keep. The goal of tax management within mutual funds is to achieve the same objective of all taxable investors: to maximize after-tax returns. Surveys conducted over the past 10 years have conveyed that investors realize the importance of taxes in their investment programs, but few are able to quantify the effect. Lipper and others have attempted to quantify the “tax drag” on mutual fund investors.
Dividend Investing: Compelling long-term opportunities for total return and income.
Judith A. Saryan, Angela D. Williams; August 2012
This paper will shed light on the importance of dividends and why they have been, and we believe should continue to be, a compelling long-term investment opportunity. First, the analysis illustrates the history of dividends as a component of total returns as well as important characteristics of dividends. It then looks at past, and considers possible future, legislative changes that may encourage investors to value dividend investing. Finally, it examines demographic changes and the role dividends will play in what will be, in our opinion, an unprecedented societal transfer of wealth.
The Supreme Court Rules on Health Care Reform: What It Means For Investors
Andrew Friedman, July 2012
The Supreme Court has now upheld the individual mandate, the controversial part of the health care reform law (The Patient Protection and Affordable Care Act) that requires individuals to carry health insurance. At the same time, the Court struck down the requirement that states expand their Medicaid coverage to include more low-income families. These rulings will have significant implications on the country’s fiscal situation. Perhaps most important for investors, the Court’s decision virtually assures that the new taxes imposed by the law will take effect on schedule in 2013.
Portfolio Manager Viewpoints: Richard England on Large-Cap Growth Investing
Richard England, June 2012
Richard England, Managing Director and Principal of Atlanta Capital Management, discusses the current market landscape and Atlanta Capital’s unique approach to large-cap growth investing.
Preparing for a Secure Retirement: The 401(k) Plan Rollover
Andrew Friedman, January 2013
It has been a difficult time for retirement savings. Investors relying on their 401(k) and IRA assets to sustain them in retirement have run headlong into the recession and a precipitous decline in asset values. In 2008, 401(k)s and IRAs lost over two trillion dollars in value. Although asset values have risen since then, most have not returned to their previous highs. At the same time, high federal budget deficits are threatening the long-term viability of the Social Security system, and reduced corporate earnings have caused businesses to cut back on traditional pension plans. Many investors are concluding they will be unable to retire as early as they hoped, or with the same post-career lifestyle.