Eaton Vance chief equity investment officer Duncan Richardson took time out of his day to try and calm nervous investors. Richardson was joined by a panel of other Eaton Vance portfolio managers, who together came to the consensus that despite the "gloomy" outlook many have, there will be money-making opportunities in 2008.
Company Press Release
A panel of investment professionals from Eaton Vance Corp., the Boston-based investment management firm, said they see a silver lining in the current market outlook labeled as “gloomy” by many. Duncan W. Richardson, chief equity investment officer at Eaton Vance moderated a panel of Eaton Vance portfolio managers including Robert B. MacIntosh, chief economist and co-director of municipal investments; Michael R. Mach, manager of Eaton Vance’s large-cap value portfolios and a co-manager of several equity income-oriented funds and Scott H. Page, head of the company’s bank loan group.
With the current credit market environment providing a volatile backdrop for their remarks, the panel addressed a wide range of questions on the minds of investors, including how they can take advantage of market weakness, whether the U.S. can avoid a recession in 2008, why investors need not worry about making a choice between “growth” or “value” stocks and the impact of current market conditions on bank loan products.
Mr. Richardson encouraged investors to “take a deep breath and remember their ABCs of investing.” “Crises generally set market lows, not highs,” said Richardson. “The current credit crisis is well-documented and a torrent of cash has flowed into money market funds. Investors will be well served in 2008 by adopting an ABC (anything but cash) investment philosophy. They should seek assets that are being overly discounted by panicky sellers.” He said that cash may make investors feel comfortable, but it is likely to be “trash” (yielding less than 3%) soon.
Chief Economist Robert MacIntosh agreed that many investors are now nervous. “A number of things are adding up to make investors feel the economy has a lot going against it. The markets are concerned that the economy has weakened because of all the financial stress we see out there.” MacIntosh added that, “However, the significant depreciation of the U.S. dollar over the past year is healthy for our economy as our export sector is being significantly stimulated. While the higher cost of oil is adversely affecting consumer spending, our growing export sector will make up for much of this drop in consumption.”
In addition, although MacIntosh recognizes the far reaching effect of the subprime crisis, he said that he does not believe the overall economy is headed for a recession. “The current housing crisis is unlikely to drag the overall economy into a recession,” said MacIntosh, who sees potential harm in excessive government involvement. “Intervention by the government and politicians ‘to ease’ the financial hardship of individual borrowers might serve to prolong the resolution of the housing crisis. This could have even more long-term negative implications for the credit markets.”
The Eaton Vance panel included both a growth investor (Richardson) and a value-oriented investor (Mach), but both managers were in agreement that the environment should continue to favor large cap companies. “We think that some style shifts that started in 2007 could easily extend through 2008 and beyond,” said Michael Mach. “In today’s market, it’s a horse race between growth and value.”
Despite today’s tumultuous environment, all the Eaton Vance panelists concurred that investors should recognize the continuing appeal of quality assets. “Fear, flows and fundamentals all argue that large cap quality U.S. equities offer a compelling risk/return prospect for long-term investors,” said Richardson. “Large cap U.S. equities are one of the most ignored major asset class on the planet. They could move back into favor if the dollar stabilizes and a global slowdown causes even more volatility in riskier assets and investment styles.”
Eaton Vance also offered investors some constructive ideas in areas of the equity and fixed income markets that have experienced collateral damage from the credit crisis, such as municipal bonds and bank loans. Scott Page, manager of Eaton Vance’s bank loan funds, outlined a compelling case that the recent decline in prices for floating rate, secured leveraged loans signals an attractive investment opportunity for bank loan products.
Page described how the recent risk-aversion contagion in mortgage and residential real estate credit markets spread to the leveraged loan market. This, coupled with record loan supply caused loan market prices to drop on average from slightly above par to approximately 95 cents.
“The silver lining in this price correction,” Page said, “is that it has built in a significant cushion to absorb credit defaults caused by a real pull-back or recession, were one to occur. That is, a significant downturn is already priced into the market whether or not it occurs. This is good value. The floating-rate nature of bank loans is an added bonus, which protects NAVs in the event of inflation and rising rates.”
In summary, despite anticipating higher volatility this year, the panel of investment professionals predicted that investors will have significant opportunities in 2008. The panel said more conservative investors will have a wide choice of high quality equity and fixed income assets from which to
Eaton Vance Corp., a Boston-based investment management firm, is listed on the New York Stock Exchange under the symbol EV. Through its subsidiaries, Eaton Vance Corp. managed $161.7 billion in assets as of October 31, 2007. Eaton Vance is an adviser and distributor of investment companies and separate accounts for individual and institutional clients.