Eaton Vance Sees the Economy's 'Engine Heating Up'
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Thursday, January 07, 2010

Eaton Vance Sees the Economy's 'Engine Heating Up'

Eaton Vance held its Investment Outlook luncheon in New York City on Thursday at the Museum of Modern Art –- perhaps a fitting venue for top company execs to look forward and offer their expectations for the market events and regulatory changes in store for 2010.

The conference, which was timed to coincide with the release of Eaton Vance's eleventh annual investor survey, featured commentary from Payson F. Swaffield, vice president and chief income investment officer, and Duncan W. Richardson, executive vice president and chief equity investment officer. Also on the panel was Andrew H. Friedman, a former senior partner with law firm Covington & Burlington and an expert on political and legislative developments and their impact on the government's tax, fiscal, and retirement policies. Approximately twelve reporters were in attendance.

Looking back at 2008 and 2009 and the rollercoaster many fund firms –- and investors –- have ridden over the past two years, the damage dealt by such volatility and market uncertainty clearly shone in the survey's finding that 82 percent of American investors still believe the economy is in recession or stagnant. As Richardson put it, “the market's up a lot but it doesn't feel good.”

Unlike investors, however, Eaton Vance's execs suggested that such pessimism is an overreaction at present and various indicators, including debt relief and the opening of the credit markets, validate the proliferation of the 'economic recovery' assessment. “I feel like the engine's heating up,” surmised Payson.

In fact, due to the significant cost-cutting measures many U.S. Companies have undertaken over the past year, Richardson predicts that in the first half of 2010 “earnings gains are going to come like a house on fire,” he told the gathering.

Still, as Friedman enumerated in depth, the financial regulatory environment is in flux and the risks facing both investors and fund firms have risen substantially. Friedman noted the tinge of 'populist flavor' permeating Washington's speeches and sees inflation and increased taxes -- which will directly hit mutual fund investors -- looming darkly on the horizon.

Perhaps most importantly, Friedman suspects that mutual firms are going to rise in importance in 2010 as “renewed focus on how 'tax efficient' a mutual fund is that you're buying” comes to the forefront of investors' minds as they seek tax relief strategies and ways to bolster their retirement income. In support of this premise, the survey found that a clear majority of investors --roughly 79 percent –- consider ensuring a comfortable retirement to be their most challenging financial concern.

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