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Eaton Vance (EV)Stock (Asset Management Industry, Closed-End Fund - Equity Industry, Financial Services Industry)
 Eaton Vance (NYSE: EV) is an asset manager with over 85% of its investments in equities and bonds. This percentage is the third largest of any asset manager.[1] Eaton holds nearly $162 billion in assets under management. A study by FactSet Research Systems ranks EV as the top performing stock since 1979 at nearly 32% returns.[2] Unlike many other asset managers, Eaton's relatively conservative investments avoided the tech boom and bust of the 1990s and 2000s.[2] The firm is a top three closed-end fund firm in the U.S.[3] by AUM, which means that the company issues a fixed number of shares for its funds.[4] Nuveen Investments and BlackRock Inc round out the top three. EV specializes in tax-managed equity and fixed-income investments for clients ranging from the individual to the institutional investor. Larger customers include big retirement funds, such as the Philadelphia Public Employees Retirement System and the El Paso County Retirement Plan, for which EV handles $70-80 million and $20 million respectfully.[5][6] Major trends affecting Eaton Vance and other firms within the asset management and financial services field include investment in emerging international markets and changing interest rates and equity prices. Bond prices move inversely with interest rates and EV often raises capital by acquiring debt, a process called leveraging. Eaton's international investment mainly consists of selling U.S. equities to offshore funds, amounting to $1.5 billion in 2007.[7] Also, Eaton Vance is subject to restructuring in tax code affecting its more than $50 billion in tax-managed assets, which are funds that are designed to minimize the impact of taxes. One key example is President Bush's 2003 Tax Act, which cut the maximum tax rate on qualified dividends to 15% (from 20%) and is set to expire in 2008.[8] Whether Congress decides to renew the Act will help determine interest in EV's tax-managed assets. Finally EV faces competition from many similar firms within the asset management industry, including T. Rowe Price Group (TROW) and BlackRock (BLK).
[edit] Corporate OverviewThe study done by FactSet Research rates Eaton Vance as the top performing publicly traded stock from 1979 to 2007 at 31.7% annual returns[9]. James Hawkes, Eaton's former CEO, attributes the long-term success to offering unique investment products for clients' needs such as its closed-end Enhanced Equity Income Fund II. When launched on February 1, 2005, this floating-rate bank loan fund alone generated $875 million when launched as it cushions investments against downward movements in interest rates.[2] However, Eaton Vance's success can also be attributed to conservative and consistently performing investments. For instance, unlike firms such as Putnam Investments, EV avoided the tech boom of the 1990s and 2000s and dodged major losses.[2] Over the FY2007, EV's Assets Under Management reached an all-time high of $161.7 billion, owing much in part to a 41% increase (since FY2006) in Equity Assets to $108.4 billion, spearheaded by large AUM inflows after strong performance in their equity and value investments.[9] The increase in equity assets can be attributed to market appreciation as well as bolstered investments. In a November 2007 press conference comparing 4Q results from 2007 and 2006, Eaton Vance confirmed that $22.9 billion of the AUM growth represented new money in its mutual funds while $11.9 billion can be attributed to market appreciation.[10] EV's February 2007 Global Equity Fund raised $5.5 billion alone on its initial public offering.[11] In fact, EV AUM have grown an average of 22% per year since 2005, including 25% growth over fiscal 2007 as it continues to weather the subprime mortgage/credit crunch storm.[12] 2007 EV AUM by Asset Type[13]  2007 EV Revenue by Segment[14]
Also, Eaton Vance earns revenue from the following sources:
Eaton Vance has also maintained strong growth in the balance books. Total revenue has more than doubled since 2003, and net income increased by 50 percent over that same period, even though it fell by about 9 percent from 2006 all reflecting the impact of shifts in AUM. This drop, accompanied by a 12% decrease in operating income, reflecting one-time costs in investment restructuring.[9]  2007 EV Revenue and Income Data[16] [edit] Key Trends and Forces[edit] Interest rate and equity price fluctuations are a mixed blessing for EVEaton Vance is unique within the financial services industry in that over 85% of their AUM investments are of the equity and fixed income varieties. Its only main competitors that hold more of their AUM under these investments are T. Rowe Price (over 90%) and AllianceBernstein (~97%). Because day-to-day interest rates are a key determining factor in the investor returns of such funds, frequent oscillations in interest rates (primarily short-term) drastically affect earnings. For example, by hedging against Treasury rate decreases in a debt financing move in October 2007, EV earned $4.5 million on the side.[1] Also, as of March 10, 2008, Eaton runs 29 leveraged closed-end funds and has $5 billion in debt in the form of Auction Preferred Shares, or shares of a closed-end fund used to buy securities.[17] Interest rates will play a key role in determining the aggregate debt when Eaton decides to repay it. Also, shifts in equity prices play a significant role in the value of Eaton's investments. A 10 percent increase in equity prices in October 2007 would have boosted the value of EV's equity investments by about $11 million dollars where the average carrying value of such investments is about $113 million dollars.[1] Finally, EV's relatively small size (compared to its main competitors) magnifies the effect of equity and interest rate shifts on its AUM as such shifts affect over 85% of Eaton's nearly $162 billion AUM. While firms like AB or TROW hold larger percentages of AUM as equity and fixed-income investments, larger total assets under management offer bigger cushions for dealing with fluctuating rates. [edit] EV minimal but growing investment in international markets reflects risk and rewardEaton Vance conducts the vast majority of its business within the US. Much of EV's increasing involvement in foreign markets involves the selling of U.S. equity capabilities to international investment vehicles, which, as of FY2007, accounted for $1.5 billion.[7], which amounts to about $450 billion, nearly three times EV's total AUM. However, in the past few years Eaton has opened a variety of international equity funds, including the Emerging Markets Fund (~$127 million AUM) and the greater China Growth Fund (~$312 million).[18] While Eaton Vance may not yet significantly invest and profit in international markets, conservative and consistently performing investments are the reason for its considerable success since 1979. [edit] Shifts in tax code impact EV tax-managed funds investmentsAs of December 17, 2007, Eaton Vance has four of its tax-managed funds within the top 20 (by assets) tax-managed equity and bond funds; only Vanguard and the Dimensional Fund Advisors had more total assets within the top 20.[19] EV has $55.1 billion of their AUM invested in open and closed-end tax-managed funds, which limit the effect of taxes on clients' investments.[20] The company makes these investments in funds with an after-tax return focus, so increases in taxes take from gains on such funds. Moreover, any changes in tax code pertaining to such investments shifts the emphasis of overall EV AUM distribution, moving EV towards or away from tax-managed investments. However, from 2005 to 2007 tax-managed assets were $34.6 billion, $39.1 billion, and $55.1 billion respectively, reflecting relatively consistent tax rates.[20] [edit] CompetitionMost of EV's competition comes from other asset management firms, including:
Below is a relevant chart of Operating Metrics for these larger companies within the Investment and Financial Services Industry. Note that though EV has the smallest AUM and its returns on equities and assets are first and second in the group respectively.
Note: Margins and Returns Data provided by Reuters
 Eaton Vance2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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