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]

Corporate Overview

The study done by FactSet Research rates Eaton Vance as the top performing publicly traded stock from 1979 to 2007 at 31.7% annual returns[7]. 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. Unlike firms such as Putnam Investments, EV avoided the tech boom of the 1990s and 2000s and dodged major losses.[2]

Business & Financial Metrics[8]

In 2009, EV generated a net income of $130.1 million on revenues of $890.4 million. This represents a 33.5% decrease in net income and an 18.7% decrease in revenues from 2008, when the company earned $190.7 million on $1.10 billion in revenue.

Business Segments[9]

Eaton Vance operates as a single reportable business segment.[10] The company's assets under management can be divided into three categories:

  • Equity Assets (62.1% of AUM) refer to EV's investments that are placed in mutual funds that mainly invest in stocks. Eaton's Equity Assets sector has been averaging 28% growth since 2005, including the 41% increase over FY2007 due to the AUM inflows.[11]
  • Fixed-Income Assets (26.7% of AUM), or bonds, refer to money invested in a government, corporation, or financial institution fund where regular returns to investors are based on the current interest rate. EV's performance within this sector is also strong, averaging nearly 19% growth the past two years.[11]
  • Floating-Rate Income Assets (11.3% of AUM) refer to EV's investments in senior variable rate loans provided by US banks and other financial institutions for corporate customers. Since 2005, this sector has performed the weakest out of the three, averaging 7.5% growth with zero growth over 2007[11]


Key Trends and Forces

Interest rate and equity price fluctuations are a mixed blessing for EV

Eaton 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] Eaton also 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.[12] Interest rates will play a key role in determining the aggregate debt when Eaton decides to repay it.

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.

EV minimal but growing investment in international markets reflects risk and reward

Eaton 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.[13], 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).[14] 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.


Most of EV's competition comes from other asset management firms, including:

  • T. Rowe Price Group (TROW) is the 29th largest asset manager in the world, by AUM[15] Over 90% of TROW assets under management fall under the fixed income and equity investments, compared to 85% of EV investments. TROW, whose AUM is more than twice that of Eaton Vance, is a direct competitor of Eaton Vance.
  • Legg Mason (LM) is the seventh-largest closed-end fund in the U.S. The company holds over $950 billion in AUM, with about 50% in fixed income assets and 35% in equity assets.
  • Franklin Resources (BEN) is the largest manager of municipal funds in the U.S. With over 80% of their investments in the equities and fixed-income markets, BEN competes with EV for investors.
  • AllianceBernstein Holding L.P. (AB) is a big manager of investments for well-off clients and functions in nearly the same capacities as EV. Of the $800 billion in AUM for AllianceBernstein, 72% falls under equity investments while nearly a quarter are fixed-income assets. Though the percentages of equity and fixed income investments are mismatched between AB and EV, AllianceBernstein's sheer AUM (nearly 5 times that of EV) makes for investor competition.
  • BlackRock (BLK) is the largest publicly traded U.S. asset manager. Over two-thirds of their assets are of the fixed-income and equity variety, making a large overlap between the services of BlackRock and Eaton Vance.

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.


  1. 1.0 1.1 EV 2007 10-K pg. 42-43  
  2. 2.0 2.1 2.2 Eaton enjoys inflows with consistent performance
  3. Bloomberg: Nuveen News
  4. Reuters: Eaton Vance funds get SEC nod for new security
  5. Philadelphia Selects Emerging Market Firms
  6. El Paso County hires Eaton Vance
  7. EV 2007 Annual Report pg. 2-3  
  8. EV 2009 10-K pg. 19  
  9. 9.0 9.1 EV 2009 10-K pg. 56  
  10. EV 2009 10-K pg. 56  
  11. 11.0 11.1 11.2
  12. Eaton Vance Announces New Financing Arrangement for Three Closed-End Funds
  13. Many of EV's competitors invest significant assets into foreign markets, creating a high risk-high reward scenario. Emerging foreign markets, though often exhibiting high economic growth (such as China's 10%+ GDP growth rate), investments often come with significant risk in volatile exchange rates or political/economic instability. Around one third of BlackRock's AUM is held in foreign-based assets<ref>[http://www.wikinvest.com/stock/BlackRock_(BLK) Wikinvest: BLK]</li> <li id="_note-5">[[#_ref-5|↑]] [http://www.eatonvance.com/mutual_funds/ Eaton Vance: Mutual Funds]</li> <li id="_note-6">[[#_ref-6|↑]] [http://www.wikinvest.com/stock/T._Rowe_Price_Group_(TROW) Wikinvest: TROW]</li></ol></ref>
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