• Home
  • Equities
    • UK
    • Global
    • Europe
    • US
    • Asia
    • Emerging markets
    • Specialist
  • Bonds
  • Multi-asset
  • ESG
    • ESG
    • Sustainable Investment
    • Sustainable Investing
  • Funds
    • Unit trusts/OEICs
    • Investment Trusts
    • VCTs/EIS
    • Platforms
    • ETFs
    • Pensions
  • Regulation
  • Diversity
  • People moves
  • Events
  • Financial library
  • Industry blogs
  • Digital Edition
  • Newsletters
  • Sign in
    • logged-in-corporate-menuYou are currently accessing Investment Week via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
     
      • Account details
      • Newsletters
      • Contact support
      • Sign out
     
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • Facebook
    • YouTube
    • Instagram
  • Register
  • Events
    • Upcoming events
      event logo
      Investment Week Select 2021

      Investment Week is delighted to announce the first 2021 date of the popular Select event, taking place on the afternoon of 26th January!

      • Date: 26 Jan 2021
      • ONLINE, ONLINE
      event logo
      Professional Adviser Multi-Asset Masterclass 2021

      Delivered online over two half-day sessions, the Multi-Asset Masterclass will look to provide a case for multi-asset investing as well as an outlook for the sector over the year ahead.

      • Date: 03 Feb 2021
      • ONLINE, ONLINE
      event logo
      Professional Adviser Working Lunches 2021

      A series of invitation only "meet the manager" virtual lunches to discuss how a multi-asset strategy can benefit your clients and your business.

      • Date: 24 Feb 2021
      • ONLINE, ONLINE
      event logo
      Professional Adviser Awards 2021

      Professional Adviser is once more issuing the call for adviser businesses from across the UK to showcase their knowledge, skills and commitment to client care by entering our 2021 Awards.

      • Date: 11 Mar 2021
      • ONLINE, ONLINE
      View all events
      Follow our events

      Sign up to receive email alerts about our events

      Sign up

  • White papers
    • Fidelity logo whitebackground1200 630px 1 120x194
      The ETF Evolution

      In this exclusive magazine exploring the evolution of quality and income ETF strategies, King reveals that each ETF follows an investment strategy developed by the group's in-house research team that leverages fundamental active insights to inform the factor definitions and applies portfolio construction principles to mitigate the unintended biases.

      Download
      7ded04ac5957a69da8d1df41c8f21a0c33988d8f 1 120x194
      A bet on the UK bounce back

      David Cumming, Aviva Investors' chief investment officer for equities, last year witnessed turbulent times for UK equities but he remains positive about the market in which he has a personal as well as a professional stake.

      Download
      Find white papers
      Search by title or subject area
      View all white papers
  • Industry blogs
  • Digital Edition
Investment Week
Investment Week
Sponsored by BMO
  • Home
  • Equities
  • Bonds
  • Multi-asset
  • ESG
  • Funds
  • Regulation
  • Diversity
  • People moves
  • logged-in-corporate-menuYou are currently accessing Investment Week via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
 
    • Account details
    • Newsletters
    • Contact support
    • Sign out
 
  • Trending
  • IW 11 Jan issue
  • Past IW issues
  • Economic 'double dip'
  • Top fund picks for 2021
  • Road to COP26
  • Markets

Eaton Vance 2019 Income Outlook

  • Payson F. Swaffield, CFA Chief Income Investment Officer Eaton Vance Management
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Share on Whatsapp
  • Send to  
0 Comments

Industry Voice: Cash was king in 2018, but likely won't be in 2019

As 2018 wound to a close, some market writers got to dust off a headline that hasn't been on target for a long time: It was a year when "cash was king." The ICE BofAML 3-mo. U.S. Treasury Index returned 1.87% during 2018, while longer-duration and credit risky fixed-income classes were flat to down for the year. Fixed-income sectors were hurt by the U.S. Federal Reserve's continued hiking of the fed funds target rate, while credit riskier segments of the market like emergingmarket debt and corporate bonds were further affected by widening credit spreads, which reflected concerns over a slowing global economy. But as Exhibit A shows, while cash was king, U.S. municipal bonds, mortgagebacked debt and floating-rate loans also had positive returns. Importantly, the fixed-income losses of 2018 resulted in higher yields for investors, which open up a range of opportunities for 2019 in sectors we believe are likely to outperform cash under various economic scenarios. But before we review those, first we look back at the dynamics that drove the fixed-income market in 2018. 

2018: Rate hikes and flattening

At the beginning of 2018, the market (as indicated by fed funds futures) and the Fed were in general agreement with expectations of three to four 25-basispoint (bps) increases in the fed funds target rate in 2018. This was coupled with a slow unwind of quantitative easing (QE), now referred to as quantitative tightening (QT). This presented a strong case for a flattening U.S. yield curve and a tail wind for the U.S. dollar. We suggested investors consider a range of floating-rate and shortduration assets in this environment. This prognosis proved to be correct, as the yield curve did indeed flatten. Most shorter-duration and floatingrate sectors eked out positive returns in 2018, while longer-duration sectors like investment-grade and high-yield debt were in negative territory (Exhibit A). Besides loans, investors have a number of choices in floating-rate assets across the credit-quality spectrum to help position their fixed-income portfolios in a rising or flattening U.S. yield curve environment. For example, municipal floating-rate notes (FRN) are rated AA+, with a yield that adjusts with the Securities Industry and Financial Markets Association (SIFMA) Index, and returned 1.70% in 2018. Floating-rate agency collateralized mortgage obligations (CMOs) are backed by single-family residences, are rated AAA, and returned 2.46% in 2018. Further out the risk spectrum, there are floating-rate collateralized loan obligations (CLOs). These are structured products invested in floating-rate loans, and are offered in different tranches of varying credit quality. For example, a B-rated CLO returned 2.93% in 2018. The yields on CMOs and CLOs both adjust with Libor.1

Considering slower growth

Toward year end, we experienced large bouts of market volatility, as a number of concerns appeared to take hold with investors, including fears of slower future global growth and an out-of-control trade war. Late in 2018, the U.S. yield curve (10-year U.S. Treasury yields minus 2 year U.S. Treasury yields) nearly inverted - an historical leading indicator of recession. Federal funds futures began to reflect speculation that the Fed might pause in its rate hikes and deliver no target fed funds increases in 2019. There's no doubt we face a number of global economic crosscurrents. Exhibit B compares Purchasing Managers' Index (PMI) levels for the U.S., Europe and China over the past year. When the PMI is below 50 the economy is considered to be in a contractionary phase. The U.S. PMI remained at 59.3, while Europe and China have slowed markedly, and both are in or close to contraction. The near inversion of the U.S. yield curve would seem to imply that the U.S. may follow the rest of the world in slower economic growth. That could be true, but even then the indicator is notoriously imprecise in terms of how soon a recession may follow - two years is the average. The U.S. economy could cool, for example, to 2% GDP growth without entering recession. The U.S. economy grew 3.5% in the third quarter and 4.2% in the second quarter, and is on pace for its strongest year of growth since 2004. If trade wars abate and employment remains strong, it's easy to imagine an environment conducive to the Fed continuing some level of QT. 

 

Download PDF to continue reading

 

About Eaton Vance

Eaton Vance is a leading global asset manager whose history dates to 1924. With offices in North America, Europe, Asia and Australia, Eaton Vance and its affiliates offer individuals and institutions a broad array of investment strategies and wealth management solutions. The Company's long record of providing exemplary service, timely innovation and attractive returns through a variety of market conditions has made Eaton Vance the investment manager of choice for many of today's most discerning investors. For more information about Eaton Vance, visit eatonvance.com.

Investing entails risks and there can be no assurance that Eaton Vance, or its affiliates, will achieve profits or avoid incurring losses. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

This material is presented for informational and illustrative purposes only as the views and opinions of Eaton Vance as of the date hereof. It should not be construed as investment advice, a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy. This material has been prepared on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. However, no assurances are provided regarding the reliability of such information and Eaton Vance has not sought to independently verify information taken from public and third party sources. Any current investment views and opinions/analyses expressed constitute judgments as of the date of this material and are subject to change at any time without notice. Different views may be expressed based on different investment styles, objectives, opinions or philosophies. This material may contain statements that are not historical facts, referred to as forward-looking statements. Future results may differ significantly from those stated in forward-looking statements, depending on factors such as changes in securities or financial markets or general economic conditions. Actual portfolio holdings will vary for each client. Different views may be expressed based on different investment styles, objectives, opinions or philosophies.

Mutual Funds are distributed by Eaton Vance Distributors, Inc. (EVD). Two International Place, Boston, MA 02110, (800) 225-6265. Member FINRA/ SIPC. 

2018 Eaton Vance Investment Counsel. Two International Place, Boston, MA 02110. Eaton Vance Investment Counsel is a wholly-owned subsidiary of Eaton Vance Corporation and is registered with the SEC as an investment adviser under the Advisers Act.

Eaton Vance Management (International) Limited (EVMI) 125 Old Broad Street, London, EC2N 1AR, United Kingdom, is authorized and regulated in the United Kingdom by the Financial Services Authority. 

EVMI is a wholly owned subsidiary of EVM is an investment adviser registered with the United States Securities and Exchange Commission ("SEC") and is a wholly owned subsidiary of Eaton Vance Corp. ("EVC"). The non-voting common stock of EVC, parent company of EVM, is publicly traded on the NYSE under the symbol "EV". For purposes of this material, "Eaton Vance" or the "Firm" is defined as all three entities operating under the Eaton Vance brand.

EVMI markets the services of the following strategic affiliates: Parametric Portfolio Associates® LLC ("PPA") (an investment advisor registered with the SEC and is a majority owned subsidiary of EVC. Hexavest Inc. ("Hexavest") is an investment advisor based in Montreal, Canada and registered with the SEC in the United States, and has a strategic partnership with Eaton Vance, who owns 49% of the stock of Hexavest. Calvert Research and Management ("CRM") is an investment advisor registered with the SEC and is a wholly owned subsidiary of EVM. This material is issued by EVMI and is for professional investors/accredited investors only.

In Singapore, EVMI has a wholly owned subsidiary, namely Eaton Vance Management International (Asia) Pte. Ltd. ("EVMIA"), 8 Marina View, #07- 05 Asia Square Tower 1, Singapore 018960, which holds a Capital Markets License under the Securities and Futures Act of Singapore (CMS100185- 1) and regulated by the Monetary Authority of Singapore. This material is to be distributed to Accredited Investors only (as defined in the Securities and Futures Act, Chapter 289 of Singapore).

EVMI is registered as a Discretionary Investment Manager in South Korea pursuant to Article 18 of Financial Investment Services and Capital Markets Act of South Korea.

In Australia, EVMI is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the provision of financial services to wholesale clients as defined in the Corporations Act 2001 (Cth) and as per the ASIC Corporations (Repeal and Transitional ) Instrument 2016/396.

Eaton Vance Management (International) Limited utilises a third party organisation in the Middle East, Wise Capital (Middle East) Limited ("Wise Capital"), to promote the investment capabilities of Eaton Vance Investment Managers to institutional investors. For these services Wise Capital is paid a fee based upon the assets that Eaton Vance provides investment advice to following these introductions.

This material does not constitute an offer to sell or the solicitation of an offer to buy any Securities/Notes/Fund Units/Services referred to expressly or impliedly in this material in the People's Republic of China (excluding Hong Kong, Macau and Taiwan, the "PRC") to any person to whom it is unlawful to make the offer or solicitation in the PRC.

The report may not be provided, sold, distributed or delivered, or provided or sold or distributed or delivered to any person for forwarding or resale or redelivery, in any such case directly or indirectly, in the People's Republic of China (the PRC, excluding Hong Kong, Macau and Taiwan) in contravention of any applicable laws.

EVMI is licensed by the United Kingdom Financial Conduct Authority to engage in the investment management business and hereby operates in Japan under Article 58-2, and Article 61, Paragraph 1 of the Financial Instruments and Exchange Act of Japan. Accordingly, services provided by Eaton Vance Management (International) Limited are available to Japanese investors only to the extent permitted under Article 58-2 and Article 61, Paragraph 1.

In Germany, Eaton Vance Management (International) Limited, Deutschland ("EVMID") is a branch office of EVMI. EVMID has been approved as a branch of EVMI by BaFin.

This material is for the benefit of persons whom Eaton Vance reasonably believes it is permitted to communicate this information and should not be forwarded to any other person without the consent of the Eaton Vance. It is not addressed to any other person and may not be used by them for any purpose whatsoever. It expresses no views as to the suitability of the investments described herein to the individual circumstances of any recipient or otherwise. It is the responsibility of every person reading this material to satisfy himself as to the full observance of the laws of any relevant country, including obtaining any governmental or other consent which may be required or observing any other formality which needs to be observed in that country. Unless otherwise stated, returns and market values contained herein are presented in US Dollars. 

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Share on Whatsapp
  • Send to  
  • Topics
  • Markets
  • Industry Voice
  • Eaton Vance
blog comments powered by Disqus
Back to Top
Trustpilot

 

  • Contact us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • Facebook
  • YouTube
  • Instagram

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading