Advisory Blog

Timely insights on the issues that matter most to investors – Income, Volatility and Taxes.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.

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Latest advisory blog entry

February 9, 2016 | 4:00 PM

How "cheap" is today's high-yield bond market?

The history of high-yield bonds has taught us that patience is often rewarded. Volatility has resulted in a yield to maturity* on the BofA/Merrill Lynch U.S. High-Yield Master II Index that stood at 9.2% on January 31, 2016, with valuations that look more attractive than they have a long time.

The chart below shows 25 instances since 1988 (when high-yield spreads over U.S. Treasurys were first tracked) through December 31, 2015 in which spreads** were about as wide as they were on that date (plus or minus 30 basis points (bps)). Annualized total returns for the three subsequent years ranged from 5.7% to 19.3%, with a median of 11.7%.

With high-yield defaults averaging about 2% over the long term, and recovery rates averaging about 40%, exposure to credit loss would be about 120bps per year on average. That leaves a considerable total return cushion if the default rate rises in the coming year – something we expect, given that 15% of the asset class is exposed to the energy, mining and materials sectors.

Worries about credit health in the energy, mining and materials sectors are legitimate. However, these concerns have also led to a broad selloff in high yield and created a buying opportunity. The market is already discounting default rates that are several times the current level. This suggests that investors with a medium- to longer-term horizon, who are comfortable with taking more risk and potential volatility, may want to consider high-yield bonds.

Bottom line: It may make sense to consider dollar-cost averaging in at this time and investing with an active manager with a process devoted to avoiding land mines. Active management, professional expertise and due diligence are key in this market.

*Yield to maturity is the total return anticipated on a bond if it is held until the end of its lifetime, expressed as an annual rate.

**Spread is the difference between the yield of a security and a comparable duration U.S. Treasury.

Past performance is no guarantee of future results.

Dollar-cost averaging does not guarantee profit or eliminate the risk of loss.

The success of any investment program depends on portfolio management's successful application of analytical skills and investment judgment. Active management involves subjective decisions.

An imbalance in supply and demand in the income market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads and a lack of price transparency in the market. Investments rated below investment grade (typically referred to as "junk") are generally subject to greater price volatility and illiquidity than higher-rated investments.

Payson F. Swaffield, CFA

Chief Income Investment Officer

Eaton Vance

The market is already discounting default rates that are several times the current level.

Latest advisory blog entry

February 8, 2016 | 1:30 PM

Muni market outlook: Interest rates in 2016

SECOND IN A SERIES

Last week, our municipal bond group offered an overview of our 2016 outlook for the muni bond market. In this post, we want to focus on the group’s outlook for interest rates this year.

Short-term rates rose in 2015 in anticipation of the Fed’s December rate increase, but longer-term rates held steady as inflation and growth remained subdued in the U.S. Looking ahead, we believe it will continue to be a low-rate environment, as the Fed will not raise the fed funds rate substantially in 2016.

Given our outlook of a continued low rate environment, investors who need income may want to consider muni bonds as a source of yield. As of December 31, 2015, munis (as measured by the Barclays Municipal Bond Index*) were yielding 2.11% on a pretax basis. Under the current maximum tax rate of 44.59%, which includes the tax from the Affordable Care Act and itemized deduction limitations, the tax-equivalent rate climbs to 3.80%. A comparison of yields is shown in the chart below.

With high tax rates still in effect for the 2016 tax year, we think munis continue to be attractive on a tax-adjusted basis compared to other fixed-income alternatives, as the chart above illustrates.

Bottom line: Given our view of a generally favorable rate environment, the higher income potential from high-yield muni bonds may be most attractive despite the additional credit risk. That said, we believe that high-yield munis should be a piece of your muni bond exposure, not an entire allocation. Our 2016 outlook blog series will continue later this week with an examination of the muni yield curve** and the implications for muni bond investors.

*The Barclays Municipal Bond Index is an unmanaged index of municipal bonds traded in the U.S. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

**Yield curve is a graphical representation of the yields offered by bonds of various maturities. The yield curve flattens when long-term rates fall and/or short-term rates increase, and the yield curve steepens when long-term rates increase and/or short-term rates fall.

Past performance is no guarantee of future results.

An imbalance in supply and demand in the municipal market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads and a lack of price transparency in the market. There generally is limited public information about municipal issuers. As interest rates rise, the value of certain income investments is likely to decline. Longer-term bonds typically are more sensitive to interest-rate changes than shorter-term bonds.


Funds Managed by Cynthia Clemson
EIHYX, EVMBX, EICTX, EIOHX, EIMOX

Cynthia Clemson

Co-Director of Municipal Investments

Eaton Vance

Investors who need income may want to consider muni bonds as a source of yield.

Latest advisory blog entry

February 5, 2016 | 3:30 PM

A value opportunity in loan land

History shows that the floating-rate loan market has often rewarded investors with patience, as Payson Swaffield pointed out last week. We agree that with the recent volatility in the market, valuations are looking as attractive as they’ve been in a long time.

In fact, save for the financial crisis in 2008, spreads* are near the widest levels the market has witnessed in over a decade. The latest Eaton Vance Monthly Market Monitor highlights this on page 10 and in the chart shown below. With loans trading near 90 cents on the dollar on average, we see a major disconnect between fundamental value and the actual prices of loans changing hands in the market today.

Assuming the Moody’s reported 80% recoveries for first-lien loans, today’s prices imply forward default rates of more than 30%, yet real-world default rates are about 1.5%, with market expectations for low single-digit defaults in the immediate years ahead.

What does this tell us? Opportunity seems to be knocking in the loan market today. Thanks to Janet Yellen and the Fed, the higher yields of the floating-rate asset class are now that much closer.

Bottom line: There is good reason, in our view, for investors to consider buying loans, adding to positions or just hanging on. Investors who have done so at levels comparable to current spreads were well rewarded for their patience. Coupon-minus** periods have historically been followed, eventually, by coupon-plus*** performance.

DOWNLOAD THE NEW MONTHLY MARKET MONITOR: New this month is an overall upgrade to MMM’s look and feel, with optimized charts, improved organization and new clickable “bookmarks” that allow users to quickly navigate each of MMM’s sections. We hope you find these upgrades useful and that our guide continues to serve as a powerful resource.

*Spread is the difference between the yield of a security and a comparable duration U.S. Treasury.

**Coupon-minus refers to total return that is below the coupon paid to investors.

***Coupon-plus refers to total return that is above the coupon paid to investors.

Past performance is no guarantee of future results.

An imbalance in supply and demand in the income market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads and a lack of price transparency in the market. Bank loans are subject to prepayment risk. Purchases and sales of bank loans in the secondary market generally are subject to contractual restrictions and may be subject to extended settlement periods.


Funds Managed by Scott Page
EIBLX, EIFAX, EIFHX

Scott Page, CFA

Co-Director of Bank Loans

Eaton Vance

We see a major disconnect between fundamental value and the actual prices of loans.

Latest advisory blog entry

February 4, 2016 | 3:00 PM

What’s next for muni bonds in 2016?

FIRST IN A SERIES

In the world of fixed income, boring is the new exciting. Given the volatility and credit concerns over the past year in areas like high-yield corporate debt, municipal (muni) bonds enjoyed a notable-yet-uneventful year in 2015.

On one hand, muni bonds remarkably outperformed nearly every asset class last year, including U.S. Treasurys and many other fixed-income asset classes. On the other hand, muni bonds’ modest return of 3.30% came without the volatility and turmoil experienced in the equity market and other areas of fixed income. Despite negative headlines over Puerto Rico’s debt challenges, the muni bond market behaved exactly as we expected: a source of diversification and volatility reduction.

So what’s next for municipal bond investors after back-to-back years of outperformance? When considering the asset class in the context of an entire investment portfolio, the case for muni bonds in 2016 remains strong thanks to:

  • Income that may be exempt from federal and state taxes.
  • Diversification benefits based on low correlations to other asset classes (see chart below).
  • Generally stable-to-improving credit quality.
  • Greater potential of inefficiencies due to the opaque nature of the $3.7 trillion market.

However, credit spreads* in the municipal marketplace are relatively tight and valuations are not as compelling as they were a year ago. Despite the current market environment for muni bonds – tight spreads, low rates and rich valuations – we think the muni market is in for a repeat year of investors clipping their coupons.

Bottom line: We expect muni bonds to provide investor portfolios with diversification benefits, which may be helpful, as volatility is likely to persist in the broader fixed-income market.

Over the next few days, our municipal bond group will offer a justification by examining our outlook for rates, the muni yield curve**, credit quality of muni bond issuers and current valuations, as well as exploring the risks to our outlook for the muni market in 2016. On Monday, our next entry will offer our outlook on interest rates in 2016 and the effects we expect to see on the muni bond market.

*Spread is the difference between the yield of a security and a comparable duration U.S. Treasury.

**Yield curve is a graphical representation of the yields offered by bonds of various maturities. The yield curve flattens when long-term rates fall and/or short-term rates increase, and the yield curve steepens when long-term rates increase and/or short-term rates fall.

Past performance is no guarantee of future results. Unless otherwise stated, index returns do not reflect the effect of any applicable sales charges, commissions, expenses, taxes or leverage, as applicable. It is not possible to invest directly in an index.


Funds Managed by Craig Brandon
EINYX, EIHMX, EIMNX, EIMAX, EIMDX, EICAX, EIAZX, EILMX

Craig Brandon

Co-Director of Municipal Investments

Eaton Vance

The case for muni bonds in 2016 remains strong.

Latest advisory blog entry

February 3, 2016 | 10:15 AM

Time to shine for active management

Earnings season is in full swing. This week, close to one-third of S&P 500 companies will report fourth-quarter results. Many advisors and investors think the operating performance of individual companies is taking a backseat to concerns about the macro environment these days. And maybe they’re right, at least on a short-term, day-to-day, basis.

There are some real concerns out there. What is the ongoing weakness in energy prices, and across the commodity spectrum, telling us? Is the slowdown in China getting worse? Monetary policy, currency trends, the employment picture, inflation, etc. The proverbial “Wall of Worry” is high. Volatility has spiked again recently, while correlations among stocks remain high. From our perspective, however, short-term volatility presents long-term opportunities. Over time, stock prices will follow earnings.

Highlights from third-quarter earnings reports provide a helpful perspective for the weeks ahead:

  • Going into the quarter, overall expectations had been lowered, especially in the energy sector and for companies that were affected by the dollar’s strength.
  • Relative to those lowered prospects, earnings per share (EPS) results actually came in “OK,” a little better than consensus estimates.
  • Sales results, on the other hand, were notably weak for the third quarter.

So, as this earnings period unfolds, investors will be especially attuned not only to EPS growth, but to those companies that can show revenue growth in the current difficult environment. When a company’s sales are under pressure, its earnings can still be bolstered by carefully managing expenses, but that can be misleading. Earnings growth without healthy revenue growth over multiple quarters may signal that a company’s competitive position isn’t as strong as it might appear.

The quality of revenue growth (i.e., from unit gains, not pricing) will also be a meaningful factor. There’s a reason why certain big-name, secular growth stocks did so well in 2015. Despite the fact that they’re large companies, they have still been showing much better-than-average top-line and bottom-line growth, even in a global economy without much momentum.

How do we recommend investors navigate such an unsettled environment? Regardless of the macro backdrop, stick with quality, well-managed companies that can continue to grow both revenues and earnings. That’s where active management comes in. It’s times like these when skilled stock pickers can potentially add value to investor portfolios.

Past performance is no guarantee of future results.

Investing entails risk. The value of your investment will fluctuate over time, and you may gain or lose money.


Funds Managed by Lewis R. Piantedosi and Yana Barton
EIFGX, ELCIX, EAEAX, CAPEX, EITMX, EITGX, EACPX

Yana S. Barton, CFA

Portfolio Manager, Growth Team

Eaton Vance

Lewis R. Piantedosi

Team Leader, Portfolio Manager, Growth Team

Eaton Vance

Over time, stock prices will follow earnings.

Latest advisory blog entry

February 2, 2016 | 3:30 PM

What to make of Iowa results

In last month's white paper, “The Metrics and Dynamics Underlying the 2016 Election,” we said that a lack of ground organization might ultimately trip up Donald Trump's campaign. Yesterday’s results in Iowa reflected that deficiency. Trump generates large crowds and great excitement when he flies in to speak. But when he departs, he leaves behind relatively few volunteers knocking on doors – and little guidance as to which doors are worthy of a knock. Ted Cruz and Marco Rubio developed ground organizations and predictive voter data greatly superior to Trump's. Ultimately that proved decisive.

Lack of ground support might not deter Trump in New Hampshire, but it could be decisive in March when the candidates must campaign simultaneously in a number of states. It is too early to count Trump out, but he will need to shore up his ground operation to continue to do well. That might be harder after showing vulnerability in Iowa.

We believe the Republican race ultimately will come down to two candidates, Rubio, representing the moderate/establishment wing of the Republican Party, and Cruz, representing the conservative/Tea Party wing.

Our paper also noted that 42% of voters are Independent – the highest percentage ever for a presidential election – and that capturing those votes could be a key to winning the presidency. We stated, "A candidate who emphasizes fiscal over social issues and exhibits a willingness to work with the other party once elected appears to have a better chance of capturing Independent votes." In this regard, a moderate Republican would appear to have an advantage over a conservative who comes from a wing that tends to be more ideological.

The dream ticket for the Republicans in the general election? We believe it is Marco Rubio at the top of the ticket and John Kasich as vice president (if Kasich indeed would accept that role). Florida and Ohio are must-win states for the Republicans. Both candidates are moderates who can capture independent votes. Rubio has the added advantage of perhaps swaying some Latino voters to the Republican side. Will Republicans, in fact, choose a moderate over a conservative? That still remains to be seen.

On the Democratic side, we continue to believe Hillary Clinton will win the Democratic nomination. Iowa (and New Hampshire, for that matter) have a lower percentage of nonwhite voters than do many other states. Clinton, in many ways an extension of the Obama administration, of which she was a part, is likely to do well with those voters in the later primaries.

Andrew Friedman

The Washington Update

Principal

We believe the Republican race ultimately will come down to two candidates.

Latest advisory blog entry

January 29, 2016 | 3:30 PM

How “cheap” is today’s loan market?

History shows that the floating-rate loan market has often rewarded investors with patience. With the recent volatility in the market, valuations are looking as attractive as they have been in a long time.

The chart below shows that since the inception of the S&P/LSTA Leveraged Loan Index* in 1998, there have only been five instances (based on monthly data) when loans have roughly been as “cheap” as they have been recently. Each bar represents a time when the discounted spread on loans** was higher or lower than the December 31 level of 714 bps by no more than 30 bps. Annualized total returns for the two subsequent years were between 5.7% and 8.0%.

There are some caveats to keep in mind. The “bounce backs” we describe stem largely from the fact that these are “par” loans – the 2% average historical default rate means that, on average, 98% of issuers have redeemed their debt at par. When volatility has pushed prices down, certain investors have noticed, and their buying activity brought prices back up. Having said that, note that although waiting two years after February 2008 would have resulted in an 8.0% annual return (as shown below), the one-year return following this date was negative for loans. We can’t predict exactly when rebounds will occur or to what extent.

Bottom line: There is good reason, in our view, for investors to consider buying loans, adding to positions or just hanging on. Investors who have done so at levels comparable to current spreads were well rewarded for their patience.

*The S&P/LSTA U.S. Leveraged Loan Index is designed to reflect the performance of the largest facilities in the leveraged loan market.

**The discounted spread is a measure of value in loans that combines the price discount from par – expressed as an annualized number based on expected years until redemption or maturity – and the annual yield spread above a loan’s base rate, such as Libor.

Past performance is no guarantee of future results.

An imbalance in supply and demand in the income market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads and a lack of price transparency in the market. Bank loans are subject to prepayment risk. Purchases and sales of bank loans in the secondary market generally are subject to contractual restrictions and may be subject to extended settlement periods.

Payson F. Swaffield, CFA

Chief Income Investment Officer

Eaton Vance

With the recent volatility in the market, valuations are looking as attractive as they have been in a long time.

Latest advisory blog entry

January 28, 2016 | 11:45 AM

March madness for the Fed?

As expected, the Fed took no action on Wednesday, leaving rates unchanged. There was no postmeeting press conference, leaving the world to parse through a one-page statement, trying to determine the meaning of slight tweaks in “Fed speak.”

Some Fed observers believed the Fed might explicitly take a March rate hike off the table because of the year’s rough start in risk assets. It appears the Fed knew better than to overreact to a few rough weeks. The Fed appropriately wants more time to see if market gyrations are in fact an indicator of slowing economic growth or a mere tantrum in markets. The stock market has predicted nine of the last five recessions, after all.

As for details of the statement:

  • The Fed remains very comfortable with the strength of the labor market despite a slowing manufacturing sector, as it mentioned, “Labor market conditions improved further even as economic growth slowed late last year.”
  • The Fed knows that fourth-quarter GDP in the U.S. is going to come in a bit below the recent trend. This is partially due to a payback from a buildup in inventories and partially due to a stronger U.S. dollar and lower oil suppressing growth in the manufacturing sector.
  • On the inflation front, the Fed expects “inflation to remain low in the near term, in part because of further declines in energy prices.” The addition of this language was dovish; however, perhaps not as dovish as some were expecting.
  • The Fed let the market know it was “closely monitoring global economic and financial developments.”

The Fed has said it is data-dependent and we continue to believe it will be going forward. So what does this mean? The bar is high for a March rate hike, but not insurmountable. The Fed will need to see volatility in markets calm down and an improvement in economic data before it progresses with another hike, and it will need these to occur very quickly to keep a March rate hike on the table. The market certainly doesn’t believe there is much of a chance, as it only has one rate hike priced in for 2016. It is important to keep in mind the market’s expectations can shift very quickly; after the Fed passed on a hike last September, the market wasn’t pricing in the first hike until March of this year. After the market calmed down in the fall and we had decent jobs numbers, expectations shifted back to a December hike.

Bottom line: If the economic data doesn’t improve and we don’t see market volatility decline, the Fed’s decision to stay put in March will be easy.

Funds Managed by Andrew Szczurowski
EIGOX, EILDX, ESIIX

Andrew Szczurowski, CFA

Portfolio Manager, Global Income Group

Eaton Vance

It appears the Fed knew better than to overreact to a few rough weeks.

Latest advisory blog entry

January 27, 2016 | 11:00 AM

Politics will move markets in 2016 (and beyond)

2016 is an election year in the United States. By December 2016, we will know the next U.S. president. Planning will be well underway for Inauguration Day on January 20, 2017. We will also know the makeup of the next Congress. The anticipation of the election as well as the actual results are likely to have a meaningful impact on equity markets.

It is worth considering the sectors and industries that might stand to benefit, depending on which party comes to power:

If Republicans win …

Potential beneficiary Reason
Oil & Gas More approvals for projects like the Keystone Pipeline.
Banks Lower compliance and legal costs.
Defense Higher military spending.


If Democrats win …

Potential beneficiary Reason
Technology More H-1B visas for foreign students entering high-skill professions.
Alternative Energy Subsidies for green energy.
Consumer Staples Higher minimum wage to support consumer spending.


Source: Eaton Vance.

It is difficult to know where to put the health care sector in the above table. On the one hand, if Democrats win, there may be an effort to put a cap on drug prices. On the other hand, the Affordable Care Act would be more secure, which has been a benefit to HMOs and hospitals, but has also led to a tax on medical device companies.

The next administration is also likely to have an impact on the U.S. dollar. It is not easy to categorize the Democrats or Republicans as favoring either a strong or a weak dollar. However, the individual candidates appear to have their own preferences.

Finally, regardless of which party takes power, corporate tax reform seems likely in 2017. Both parties recognize that U.S. businesses are disadvantaged globally, leading to job losses and corporate relocations. The U.S. has not changed its corporate tax rate in a quarter century. Meanwhile, other countries have been steadily cutting theirs, resulting in the U.S. having the highest corporate tax rate in the developed world.

Funds Managed by Edward J. Perkin
EIFVX, EILVX, EITVX

Edward J. Perkin, CFA

Chief Equity Investment Officer

Eaton Vance

The anticipation of the election as well as the actual results are likely to have a meaningful impact on equity markets.

Latest advisory blog entry

January 26, 2016 | 2:45 PM

If it ain’t one thing, it’s another

It’s always something when it comes to the U.S. economy. We enter 2016 with a generally upbeat outlook mainly because consumers, who account for an estimated 70% of GDP, are benefiting from both wage gains and lower energy prices. It also appears likely that commodities are nearing the end of their bear market, thereby relieving pressure on the industrial sectors. Additionally, in light of the recent budget deal there seems to be a reasonable expectation that government spending will begin increasing again.

Nevertheless, we are likely to start the year slowly as the economy works-off relatively high goods inventories. Fortunately, inventory adjustments don’t typically foretell the end of an economic cycle. As such, we expect that 2016 growth will fall in the same 1.5%-to-2.5% range that has defined the trend since the financial crisis.

While we criticized the Fed for delaying the start of normalizing rates in September, we were part of a consensus opinion the Fed appears to have heard, as it ultimately initiated a well-orchestrated move to increase short-term rates by 25 basis points in December 2015. Like most, we are now focused on the pace of future increases and expect four quarter-point moves higher in 2016; this is a bit above market expectations as a result of our more aggressive inflation forecast. Even though 2016’s Federal Open Market Committee (FOMC) appears more likely to raise rates than last year’s committee, we don’t expect further tightening in the form of unexpected rate moves or a reduction in the Fed’s bond holdings unless inflation exceeds our outlook by a considerable margin.

If we are right in our view on inflation and Fed policy, it follows that bond yields should end the year higher, but not dramatically so. Inflation above what is priced in the market is the biggest risk we see. Likewise, if the energy and commodity bear markets have run their course, corporate spreads could stabilize in those sectors and begin to retrace last year’s widening.

Complicating these investment decisions is a world that seems to be ever more geopolitically complex, particularly with the growing threat of global terrorism. Throw in a hotly contested U.S. presidential election and the only conclusion that seems certain is a hugely interesting and provocative 2016.

Bottom line: Roseanne Roseannadanna famously ended each of her classic “Saturday Night Live” monologues with, “If it ain’t one thing, it’s another.” The challenge of 2016 will be to figure out the other thing before the market does.

Funds Managed by Thomas Luster
EIIFX, EIGIX, EIRRX, EHCXX

Thomas Luster, CFA

Co-Director of Diversified Fixed Income

Eaton Vance

We are now focused on the pace of future increases.

Latest advisory blog entry

January 26, 2016 | 1:30 PM

U.S. election metrics and dynamics

2016 is finally here, and with it the long-anticipated national election. While the candidates pontificate and the television networks spin, underlying the election are three fundamental metrics that are crucial for understanding the campaigns and evaluating the possible outcomes.

  • Party Affiliation: 42% of the country is Independent, up two percentage points since the 2012 election and close to the highest percentage in the nation’s history. These numbers, in our view, make capturing the Independent vote one key to winning the election.
  • Demographics: Since the last presidential election, the percentage of nonwhite voters has risen three points to 31%. The percentage of the white population has declined accordingly to 69%. If the next president captures 59% of the white vote, he or she must capture 30% of the nonwhite vote to win the election. The greatest percentage of nonwhite Republican votes was 26% for George W. Bush in 2004 -- four percentage points fewer than the Republican candidate would need in 2016.
  • The Electoral College: To become president, a candidate must garner 270 electoral votes. Tallying the electoral votes from the states Democrats almost will surely win (such as California and New York), plus votes from two states they are likely to win (Iowa and Pennsylvania), yields 249 electoral votes, 21 votes shy of winning the election. The Republicans, on the other hand, can count on 191 electoral votes from states they almost will surely win, leaving them 79 votes short.

Standing alone, without the benefit of a particular candidate’s personality, the metrics above appear to favor a Democratic candidate. But another important factor favors the Republicans: after two terms of one party in the White House, the electorate tends to want to switch to the opposing party.

The Republicans, too, must contend with party dynamics that could affect their success in the general election: (i) the split between the party’s moderate and conservative factions, and (ii) the ascendency of a candidate who does not fit neatly into either faction, Donald Trump.

For investors, if Trump does well in the early primaries and builds momentum toward the convention, look for the markets to become much more volatile. Similarly, markets are likely to react negatively if Clinton ramps up her anti-Wall Street rhetoric to fend off challenges to her left, or if (far less likely) Bernie Sanders manages seriously to undermine her front runner status.

Bottom line: Each presidential election stands on its own. It cannot be reduced to numbers and historical analogies. The candidates’ respective policies, personalities, and ability to connect with voters ultimately will decide the winner.

    Andrew Friedman

    The Washington Update

    Principal

    Look for the markets to become much more volatile.

    Latest advisory blog entry

    January 22, 2016 | 4:00 PM

    Treating volatility as an asset

    As anyone who has been following the markets knows, volatility is back. The CBOE Volatility Index*, or VIX, is near 30, roughly twice its long-term average, and the Merrill Lynch Option Volatility Estimate (MOVE) Index, which measures interest-rate volatility, has moved up 15 basis points to 80 basis points. The question is whether the volatility in the marketplace represents a real shift in long-term fundamentals or emotionally driven selling pressure or hedging desires.

    Truth be told, it is probably a little of both. However, we would argue that fundamentals have not deteriorated significantly and that perception and herding behavior are likely the main culprits. As always, time horizon matters. Calling a bottom in asset prices is a near impossibility and if investors are concerned about the next minute, day or week in performance, this can be a challenging time. Instead, if investors can take an unemotional step back, look at value offered in the market today, and attempt to frame prices in the context of expected return, it is hard to conclude that there are not opportunities in current pricing and volatility.

    Of course, assets can become less expensive. Emotions, particularly fear, can be powerful forces. The negative feedback loop we are experiencing in the market – the U.S. dollar and oil reacting to fear surrounding China, which drives dollar strength and commodity weakness, and then feeds back into fears on China and emerging markets – will be broken by either some form of policy response or valuation. The former is hard to become too excited about, though the European Central Bank did seem to budge a bit yesterday. But valuation is beginning to become compelling, particularly in credit markets when traditional investors see unfavorable asymmetry in expected returns. As the investing community moves away from volatility, prices can overshoot and create opportunity.

    For this reason, we embrace volatility and dispersion as assets. While volatility could certainly move higher, as it may be expected to during two very important transitions (from lower to higher rates, and industrial to service sector growth), investors could be rewarded by taking an unemotional step back and examining the marketplace. When assets become inexpensive, it is tempting to time an entry point and let fear sneak into an objective look at the numbers. Instead, a wise strategy may be to begin to tip toe into the markets and look to scale in.

    Bottom line: In our view, there are compelling opportunities for active managers with a long time horizon. Specifically, high yield is beginning to show value when compared with expected default rates both as a whole and excluding energy and metals. Elsewhere, non-U.S. dollar debt is exhibiting signs of fairly extreme valuation, and even investment-grade credit is expressing more fair valuation based on breakeven spreads.

    *The CBOE Volatility Index (VIX) tracks the implied volatilities of a wide range of S&P 500 Index options.

    Investing entails risk. An imbalance in supply and demand in the income market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads and a lack of price transparency in the market. Investments rated below investment grade (typically referred to as "junk") are generally subject to greater price volatility and illiquidity than higher-rated investments.

    Funds Managed by Henry Peabody
    EVBIX, EBTIX

    Henry Peabody, CFA

    Diversified Fixed Income Portfolio Manager

    Eaton Vance

    As the investing community moves away from volatility, prices can overshoot and create opportunity.

    Latest advisory blog entry

    January 22, 2016 | 4:15 PM

    Has the bear awoken?

    For the past seven years, equity markets have been nothing short of exceptional. A consistent combination of strong stock returns, relatively low volatility, and a periodic dose of monetary medicine has kept the bears comfortably sleeping. In fact, history suggests this may be one of the best bull market runs on record with seven consecutive years of positive returns in the S&P 500 index.

    However, 2016 has gotten off to a rough start with the market down nearly 9% at its lowest point, representing one of the worst starts in recent history. An analysis of economic data arguably suggests the global economy is facing some headwinds, including a slowdown in China, heightened volatility in energy markets, slower growth, and a cautious consumer. As a result, investors should be prepared for increased volatility throughout the year.

    Bottom line: In this environment, establishing a high-quality, modestly conservative equity approach that can withstand the potential of heightened market volatility while seeking to protect the gains of previous years is a good starting point worth consideration.

    Investing entails risk. The value of your investment will fluctuate over time, and you may gain or lose money.

    Funds Managed by Charles Gaffney
    EIERX, EIIFX, EROIX, EIUTX

    Charles Gaffney

    Equity Portfolio Manager

    Eaton Vance

    Investors should be prepared for increased volatility throughout the year.

    Latest advisory blog entry

    January 21, 2016 | 4:00 PM

    What will stop the sell-off?

    The poor start to 2016 continues, with nearly all risk assets (such as equities, oil and high-yield debt) trading off sharply. Earlier in the year, China was the main driver of volatility. Lately, however, broader markets have been taking their tone from the decline in oil prices.

    We expect to see certain areas impacted by the drop in oil, namely high yield and oil-exporting emerging markets. However, sharply lower oil prices seem to be affecting all financial markets. Countries like Japan, which is an oil importer, should be helped by lower oil prices. Instead, all markets seem to be trading as one. So some of the price action we’re seeing makes sense, and some doesn’t.

    What will stop the sell-off in risk assets? In my view, there are three possible scenarios:

    • Oil prices stop falling and stabilize.
    • China’s markets find their balance.
    • Central bank policy action, more likely from outside the U.S. than from the U.S.

    Some have called for the Federal Reserve to start another round of quantitative easing or to even cut the fed funds rates. While that’s certainly a possibility, I don’t view that as a likely scenario. Instead, I think that central banks that are currently in easing mode provide more stimulus in order to give financial markets a jolt.

    This morning, for example, European Central Bank (ECB) President Mario Draghi said that downside risks are again on the rise and that the ECB may consider further easing at the next meeting. Upon this announcement, the euro declined and risk assets broadly rose.

    Bottom line: While central bank policy actions are no panacea for fundamental reforms and a stabilization in economic data, today’s announcement from the ECB does prove that the "central bank put" is alive and well, but maybe a little farther out of the money today in a world of Fed-tightening than it was a few years ago.

    Funds Managed by Eric Stein
    EIGMX, EGRIX, ECIIX, EICOX, ESIIX

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    Today’s announcement from the ECB does prove that the “central bank put” is alive and well

    Latest advisory blog entry

    January 21, 2016 | 4:30 PM

    The sell-off’s silver lining for tax-sensitive investors

    With the sharp 10% correction that most equity markets have experienced in the first three weeks of the year, it is easy for investors to experience the feeling of the proverbial “deer in the headlights.” Rather than trying to guess whether the next move of the market will be up or down, tax-sensitive investors can take advantage of the current situation with a couple of concrete steps.

    Tax loss harvesting is something that many advisors and investors engage in toward year-end. Selling securities or funds at a loss in December to offset realized gains from earlier in the year helps minimize the tax hit come April of the following year. With the sell-off in equities early in 2016, we believe investors are well-served to reverse the order of these actions. Taking losses now may come in handy later, assuming the market finds its level at some point.

    We think investors should take the time to look for opportunities to harvest losses in their equity portfolios. Importantly, rather than leave these funds in cash, we think it make sense to consider redeploying them back into either existing high-conviction holdings or new opportunities that the market sell-off is providing. Current high correlations between individual stocks and low dispersions within industry groups make the current environment particularly favorable for finding good substitute holdings to replace the harvested position.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Funds Managed by Michael Allison
    EDIIX, EIDIX, CAPEX, EITMX, EITGX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Michael Allison, CFA

    Equity Portfolio Manager

    Eaton Vance

    Taking losses now may come in handy later, assuming the market finds its level at some point.

    Latest advisory blog entry

    January 21, 2016 | 3:00 PM

    Are things really that bad?

    We’re only partly through January and already the MSCI World Index* is down more than 10% year-to-date. Every day we are bombarded with pessimistic headlines and bearish talking heads stoking fears. Oil collapse, China slowdown, rising interest rates, etc. So much to worry about…

    But is it really that bad? We don’t think so.

    Oil. The oil price has been painful for energy companies, some banks that lend to them, energy-related industrials and a handful of emerging-market countries. However, the beneficiaries of lower oil prices are far more prevalent – the economies of China, India, Europe and Japan, not to mention the powerful U.S. consumer.

    China. The slowdown of the Chinese economy is nothing new. What is new is the incremental weakening of China’s overvalued currency, the yuan, which is necessary to maintain the competitiveness of Chinese manufacturers. We expect this process will be managed in an orderly fashion and will be a positive in the long term. Meanwhile, Chinese consumer spending remains strong. It’s important to distinguish between the theatrics of the Chinese stock market and the country’s underlying economy.

    Rising interest rates. The party couldn’t go on forever. The Fed’s initial move to raise rates reflects a U.S. economy that is stronger and more stable after many years of fragility. Unemployment has fallen to 5.0% for the first time since 2008, wages will rise, consumption growth is solid and the housing recovery has been strong and steady.

    Bottom line: We believe that market psychology (i.e., fear) is outweighing equity market fundamentals. It is impossible to predict when the fundamentals will overwhelm the fear and the market will snap back. But we do expect this at some point. Long-term investors should stick to a strategy of dollar-cost averaging** to take advantage of market weakness.

    *The MSCI World Index is a broad market index widely used to measure global equity market performance across developed markets.

    **Dollar-cost averaging does not guarantee profit or eliminate the risk of loss.

    Funds Managed by Chris Dyer
    EFGIX, EFIIX, EDIIX, EIDIX

    Chris Dyer

    Director of Global Equity

    Eaton Vance

    We believe that market psychology (i.e., fear) is outweighing equity market fundamentals.

    Latest advisory blog entry

    January 19, 2016 | 2:00 PM

    Three areas of opportunity in 2016

    Over the past month or so, we have frequently been asked where we see opportunity in 2016. There are actually several asset classes and market sectors that we like going forward, including:

    • High-yield bonds and floating-rate loans. Both of these sectors encountered some weakness toward the end of 2015, partly due to the energy-sensitive areas of the market that were hurt by lower oil prices, along with just general year-end selling pressure. But, we think that with the U.S. economy fairly strong, corporate balance sheets still in good shape and historically low default rates in both sectors, we could see potentially attractive returns from high-yield bonds and floating-rate loans going forward.
    • Agency mortgage-backed securities (MBS). We favor interest-only agency MBS for a rising interest-rate environment. Although we expect the yield curve* to flatten in 2016 (i.e., short-term interest rates to rise faster than long-term rates), we expect the long end of the curve to rise as well. With that, we’re likely to see higher mortgage rates, which would actually mean slower mortgage prepayments. That should be good news for MBS that are particularly sensitive to prepayment speeds.
    • Emerging- and frontier-market debt. There appear to be signs of value in emerging-market debt after a tough few years for the asset class. However, selectivity will be critical in this space, as political and economic risks remain elevated in some emerging- and frontier-market countries.

    *Yield curve is a graphical representation of the yields offered by bonds of various maturities.

    Funds Managed by Andrew Szczurowski
    EIGOX, EILDX, ESIIX

    Funds Managed by Eric Stein
    EIGMX, EGRIX, ECIIX, EICOX, ESIIX

    Andrew Szczurowski, CFA

    Portfolio Manager, Global Income Group

    Eaton Vance

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    There appear to be signs of value in emerging-market debt after a tough few years for the asset class.

    Latest advisory blog entry

    January 19, 2016 | 10:00 AM

    Newer isn’t always better

    Over the past decade, assets under management in ”asset allocation” products have more than doubled – and that is not including the boom in Target Date Funds. The Great Recession created a new generation of risk-averse investors willing to forgo the possible upside of a pure equity fund by investing in a more conservative, asset allocation type fund in hopes of avoiding the kind of losses seen in 2008. These various asset allocation products offer diversification, along with professional asset allocation and timing decisions.

    The oldest group to fit into this product framework is traditional balanced funds (a mix of stocks, bonds and cash), which have been around for more than 80 years. Their relative defensiveness – investors can choose from Conservative, Moderate or Aggressive based on percentage of assets in equities/fixed income/cash – is enhanced with this asset diversification, as well as built-in risk management via a fairly static asset allocation.

    The fastest-growing category, however, has been tactical asset allocation funds. These funds actively vary the amounts they keep in stocks, bonds and cash in an effort to get the best return. With market timing calls, managers hope to avoid the big downturns, while also participating in market upside. This category has been hot in recent years, with the number of such funds increasing from 27 in 2004 to 304 in 2015 and AUM rising from $15bn to $68bn over the same period.

    With that kind of growth, we decided to compare the two categories in terms of performance and risk data. We were, frankly, surprised by the results. The classic balanced asset allocation funds significantly outperformed the tactical category over every time period shown in the chart below. The Conservative and Moderate allocations did so with less risk (as measured by the Standard Deviation), and more importantly, they all did so with higher Sharpe ratios (i.e., better risk-adjusted returns).

    as of 12/31/2015

    Morningstar Category 3-Mo.
    Return
    YTD
    Return
    1-Yr.
    Return
    3-Yr.
    Return
    5-Yr.
    Return
    10-Yr.
    Return
    Conservative Allocation 0.93% -2.32% -2.32% 3.18% 4.30% 4.15%
    Moderate Allocation 2.57% -1.93% -1.93% 6.96% 6.51% 5.23%
    Aggressive Allocation 3.26% -2.77% -2.77% 7.86% 6.69% 4.72%
    Tactical Allocation 0.04% -5.93% -5.93% 1.18% 2.51% 3.19%


    Morningstar Category Std Dev
    1-Yr.
    Std Dev
    3-Yr.
    Std Dev
    5-Yr.
    Std Dev
    10-Yr.
    Sharpe
    1-Yr.
    Sharpe
    3-Yr.
    Sharpe
    5-Yr.
    Sharpe
    10-Yr.
    Conservative Allocation 5.57 5.09 5.74 7.82 -0.38 0.67 0.79 0.43
    Moderate Allocation 8.54 7.28 8.34 10.86 -0.19 0.97 0.81 0.42


    Source: Morningstar.

    Bottom line: Newer, trendier and “hotter” are not always better. By avoiding market timing calls and not chasing performance, classic balanced funds may provide some downside protection, along with strong absolute performance and/or risk-adjusted returns.

    Past performance is no guarantee of future results.

    Standard deviation is a measure of a security's volatility, or variability, in expected return. As such, it is a measure of risk; higher numbers indicate higher historical volatility.

    Sharpe Ratio is a measure of risk-adjusted performance. The higher the Sharpe Ratio, the better the Fund's historical risk-adjusted performance.

    Diversification cannot ensure a profit or eliminate the risk of loss.

    Kiersten Christensen

    Institutional Portfolio Manager

    Eaton Vance

    By avoiding market timing calls and not chasing performance, classic balanced funds may provide some downside protection, along with strong absolute performance and/or risk-adjusted returns.

    Latest advisory blog entry

    January 15, 2016 | 11:15 AM

    What’s ahead for muni bonds?

    For a second year in a row, the leading fixed-income sector was municipal bonds, with the Barclays Municipal Bond Index posting a total return of 3.30% in 2015. In general, higher-quality fixed-income sectors like muni bonds had modestly stronger results, but returns were notably lower than in 2014.

    Heading into last year and following strong gains in 2014, we said that municipal bonds

    were compelling because of high tax-equivalent yields, attractive valuations, improving credit quality and positive supply/demand dynamics. Importantly, we said investors should consider the diversification potential muni bonds offer as they relate to other fixed-income asset classes, as the chart below shows using correlations. In the full context of a portfolio, we continue to believe that muni bonds are an asset class that can serve as an anchor of a fixed-income portfolio.

    After a second year of strong relative performance, what’s next for muni bonds? As we entered the New Year, AAA-rated municipal-to-Treasury ratios dropped to levels that indicate muni bonds are not as relatively attractive as they were entering 2015. Similarly, BBB-to-AAA yields spreads are historically tight, as the chart from the latest Monthly Market Monitor shows. That means that active management will become particularly important in 2016.

    Despite challenges surrounding pension and other liabilities in certain states, the muni credit landscape continues to improve at the state and local level. However, the muni market may experience volatility in 2016 due to uncertainty over Puerto Rico as well as the pace of Federal Reserve interest rate increases.

    With that being said, we believe that opportunities may result from muni market volatility. A flexible approach to muni bonds can help search for opportunities such as taxable muni bonds, insured bonds with distressed underlying credits, hospital bonds and municipal floating-rate notes. Should volatility increase as we expect, an experienced, skilled investment manager can help navigate the muni market.

    DOWNLOAD THE NEW MONTHLY MARKET MONITOR: New this month is an overall upgrade to MMM’s look and feel, with optimized charts, improved organization and new clickable “bookmarks” that allow users to quickly navigate each of MMM’s sections. We hope you find these upgrades useful and that our guide continues to serve as a powerful resource.

    Funds Managed by Adam Weigold
    EILMX, EICAX, EIGAX, EMAIX, MOIX, EINAX, EINJX, ENYIX, EINCX, EIORX, EIPAX, EISCX, EVAIX

    Adam Weigold

    Senior Municipal Portfolio Manager

    Eaton Vance

    Active management will become particularly important in 2016.

    Latest advisory blog entry

    January 14, 2016 | 2:00 PM

    Volatility and the U.S. profit recession

    Volatility is always unsettling for investors. Is the recent volatility the fault of the Federal Reserve for raising rates? In some ways, yes. For several months, we have pointed out that perhaps the main reason for the markets’ volatility is the odd combination of the Fed hiking interest rates when the profits cycle was decelerating.

    In reality, this is a full-blown profit recession; corporate earnings have had five consecutive quarters of declining earnings, which we believe troughed in the third quarter of 2015. Historically, corporate profits revved up when the Fed started increasing rates, and the positive of accelerating earnings would overwhelm the incremental negative of the Fed raising interest rates.

    Instead, earnings growth for the S&P 500 Index is negative. Rather than a traditional offsetting relationship at this early point of the tightening cycle, the near-term interest rate outlook and the near-term profits outlook are both negative. This has never happened before.

    Frankly, I’m surprised more people aren’t talking about this. This is a recipe for volatility. It’s unsettling to the market to see the most important central bank in the world restraining liquidity at a time when we see signs of both global deflation and a profit recession in the U.S. If you accept that the Fed will continue to raise rates during a profits recession, it makes perfect sense why we’re seeing increased volatility right now.

    Bottom line: The question going forward, is there going to be more volatility? It depends on when you think the Fed is going to raise rates and when you think profitability is going to trough. Of course, earnings may start rebounding. If the relationship between the fed funds rate and the profits cycle returns to a more normal one, we think the equity market can continue advancing as it would during a mid/late-cycle environment.

    Funds Managed by Richard Bernstein
    ERBIX, EIRAX, ERMIX

    Richard Bernstein

    CEO and CIO

    Richard Bernstein Advisors, LLC

    Frankly, I’m surprised more people aren’t talking about this. This is a recipe for volatility.

    Latest advisory blog entry

    January 14, 2016 | 4:00 PM

    A contrarian's dream market

    With the exception of 2009, investor sentiment is the worst I can remember it being to start a new year. Normally, this is the time of year when people add to their 401(k)s, put their bonuses into the market and buy back the positions they tax-loss harvested at the end of the prior year.

    One of my favorite measures of sentiment is the American Association of Individual Investors (AAII) survey. This organization regularly surveys retail investors to ask them if they are bullish, bearish or neutral on U.S. stocks over the next six months. The chart below shows that the level of bullishness in this survey has now fallen to 17.9% (as of today), lower than the 18.9% level reached on March 5, 2009, four days before the bear market bottom.

    This poor sentiment and a lack of fundamental data over the past couple of weeks largely explain the market's recent move lower. We simply haven't learned much new in the past two weeks. We had a good jobs number last Friday and a mediocre Beige Book report yesterday. China's equity market is all over the place, but that doesn't really matter. With earnings season now underway (this morning, JP Morgan was the first big bank to report), we expect investors to focus more on company-specific results and outlooks.

    One of my favorite Warren Buffett quotes is that investors should “be fearful when others are greedy and greedy when others are fearful.” Right now, investors are fearful, so it looks like a relatively attractive entry point for long-term investors. Our equity analysts have found several new ideas in recent days, and we have appetite to consider adding to a number of existing positions.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Right now, investors are fearful, so it looks like a relatively attractive entry point for long-term investors.

    Latest advisory blog entry

    January 13, 2016 | 10:45 AM

    Think core, alpha and yield with munis

    Within an asset allocation, blending strategies may be an effective way to position for uncertainty. Investors seeking to enhance municipal market returns may find value in blending strategies to establish a rules-based foundation (or core), accompanied with targeted enhancements of opportunistic total return (or alpha*) and/or income (or yield). This combination of core, alpha and yield strategies is designed to give the investor a balanced approach to their municipal bond fund allocation.

    Let’s address core first. Employing a laddered municipal strategy is something an investor should consider today to prepare for rising interest rates. In order to be defensive against rising interest rates, a laddered portfolio structure should be equal-weighted by maturity so that it methodically reinvests a known portion of the portfolio each and every year. In a rising interest rate environment, the strategy is in effect dollar cost averaging into higher rates. When customized for the individual investor by credit and maturity range, a laddered strategy can form the “core” investment for a municipal allocation.

    For investors looking to enhance total return, it may make sense to diversify into a “go-anywhere,” opportunistic style of investing where a manager seeks to deliver alpha. An opportunistic strategy makes subjective appraisals of opportunities within the municipal market, including with credit, duration** and/or the yield curve.*** An opportunistic approach may give a manager the flexibility to invest based on changing market conditions. Coupled with a core strategy, an alpha strategy may seek to take advantage of temporary opportunities while maintaining a rules-based, more predictable foundation.

    Investors may also seek to enhance the yield. A strategy to enhance tax-free income**** or yield could be achieved with an allocation to a high-yield municipal bond strategy. By focusing on market opportunities utilizing credit expertise, a high-yield muni strategy may seek to deliver more yield or compelling tax-free income. Blending a yield strategy with a core strategy may enhance income while mitigating credit risk.

    Bottom line: Blending strategies can be an effective way to position for uncertainty. The complementary strategies of core, alpha, and yield may provide a municipal investor with a balanced municipal portfolio that offers the potential for an investing experience that no single strategy could achieve on its own.

    * Alpha is a measure of risk-adjusted performance, showing excess return delivered at the same risk level as the benchmark.
    ** Duration is the measure of the sensitivity of the price of a fixed-income investment to a change in interest rate. Duration is expressed as a number of years.
    *** Yield curve is a graphical representation of the yields offered by bonds of various maturities.
    ****A portion of income may be subject to federal income and/or alternative minimum tax.

    Funds Managed by Christopher Harshman
    EITTX, EILTX, EILBX, ETIIX

    Chris Harshman, CFA

    Municipal Portfolio Manager

    Eaton Vance

    The complementary strategies of core, alpha, and yield may provide a municipal investor with a balanced municipal portfolio that offers the potential for an investing experience that no single strategy could achieve on its own.

    Latest advisory blog entry

    January 12, 2016 | 9:30 AM

    Oman, Oh-Man

    Saudi Arabia has certainly been in the news a lot lately. And for good reason. But there is one sleepy part of the Gulf Cooperation Council (GCC) that is not really registering on the radar of many. That country is Oman.

    The Gulf region is in the midst of a trade shock. While Saudi attracts all the attention due to the size and relevance of its capital markets, it is Oman that is the GCC's weakest link. Oman has the weakest fiscal position, among the lowest financial buffers and also appears to be the slowest in making the necessary adjustments. In short, it is the GCC's Greece.

    The challenges facing these countries are significant. But the simple economic reality is this: With lower oil prices, national incomes are lower. Countries need to either adjust to new lower living standards or draw down their savings on the hope that the oil decline is temporary. But, perhaps Oman does not have the luxury of choosing. Without the fiscal buffers, they need to adjust quickly. Frequently, this is done with a two-pronged approach: A fast-paced currency depreciation and a slower-paced fiscal adjustment and structural reform program.

    Unfortunately, the GCC currencies are pegged to the U.S. dollar. So, instead of getting the currency depreciation they need, these currencies, along with the U.S. dollar, have been appreciating versus practically every currency in the world over the last few years. How inappropriate!

    Greece and the troika spent precious resources bailing out creditors on the false premise that Greece is just facing a liquidity crisis and not a solvency one. Oman is facing the risk of defending a currency regime that is no longer appropriate, given the oil price and U.S. Federal Reserve monetary policy. This could be the year that more flexible thinking is brought to the FX regimes of the Gulf. Oman will be the first test.

    Funds Managed by Michael Cirami
    ECIIX, EIIMX, EEIIX, EGRIX, EIGMX, EICOX

    Michael Cirami, CFA

    Co-Director of Global Income

    Eaton Vance

    While Saudi attracts all the attention due to the size and relevance of its capital markets, it is Oman that is the GCC's weakest link.

    Latest advisory blog entry

    January 12, 2016 | 1:00 PM

    2016 Outlook: Elections and volatility

    The presidential election will be the highlight of 2016, but what will the impact be for investors? As part of our 2016 Investment Outlook series, Andrew Friedman discussed the major political issues investors should watch this year, including:

    • Election season’s potential impact on the markets
    • What legislation will pass in 2016?
    • Tax and entitlement reform

    Andrew Friedman

    The Washington Update

    Principal

    Latest advisory blog entry

    January 11, 2016 | 4:30 PM

    The worst start to a year: What’s next?

    U.S. stocks endured their worst opening week to a calendar year in history due to fears over China’s growth. What should investors expect next? In this video, Chief Equity Investment Officer Edward Perkin discusses recent negative sentiment and where the focus will turn to in the coming week.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Latest advisory blog entry

    January 11, 2016 | 4:00 PM

    The jobs just keep on comin’

    For the third month in a row, the U.S. economy had very healthy job gains, adding 292K jobs in the month of December 2015, well above expectations. Just three months ago, after two weak job prints, many were calling for a “new normal” of lower job growth; however, what followed was the strongest quarter of the year (averaging 284K per month). The unseasonably warm fourth quarter likely aided job gains, so we shouldn’t expect the economy to continue to average 284K jobs added per month. However, even gains of 175K-200K going forward would be enough to remove slack and eventually produce the “unicorn,” which is wage inflation.

    • In addition to the very encouraging headline number, the prior two months were revised up by a total of 50K jobs.
    • The much choppier household employment survey showed 485K jobs added in December, the strongest print since January.
    • Despite the strong gains in the household employment survey, the unemployment rate remained at 5.0% (down from 5.03% to 5.00% unrounded), due to a 466K increase in the number of people in the labor force.
    • With the increase in the labor force, the labor participation rate ticked up for the second month in a row, from 62.5% to 62.6%, which the Fed will view favorably.
    • Average hourly earnings were the one weak spot in the report, on a flat month-over-month basis; however, as expected, base effects pushed the year-over-year number up, to 2.5% from 2.3%.
    • The health care industry remained the primary driver of job growth, adding 53K jobs in December. The construction industry also remained strong and continued to benefit from the unusually warm weather, adding 45K jobs in December. It was 70 degrees in Boston on Christmas Eve, which made for a much easier climate for building homes.

    Bottom line: Wage inflation aside, this was another very strong jobs report and, in our view, keeps the Fed on course for four interest-rate hikes in 2016. The March Fed meeting is still over two months away and there will be a lot of data released before then, but this is certainly a step in the right direction.

    Funds Managed by Andrew Szczurowski
    EIGOX, EILDX, ESIIX

    Andrew Szczurowski, CFA

    Portfolio Manager, Global Income Group

    Eaton Vance

    Wage inflation aside, this was another very strong jobs report and, in our view, keeps the Fed on course for four interest-rate hikes in 2016.

    Latest advisory blog entry

    January 8, 2016 | 2:00 PM

    2016 Outlook: What to make of commodities and currencies

    Emerging markets, commodities and some global currencies came under pressure last year, but there are signals a shift may be coming in 2016. While we realize that it is still early in the transition, we think it makes sense to be positioned for this shift in out-of-favor sectors that offer a compelling opportunity.

    As part of our 2016 Investment Outlook series, Co-Director of Diversified Fixed Income Kathleen Gaffney and Portfolio Manager Henry Peabody discussed their views on the income market, including:

    • Why a multisector approach makes sense for 2016
    • Commodities, currencies and EM: Opportunities in 2016?
    • How big a risk is China in 2016?
    • Will oil rebound from its 2015 collapse?

    Funds Managed by Kathleen Gaffney and Henry Peabody
    EVBIX, EBTIX

    Kathleen Gaffney, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    Henry Peabody, CFA

    Diversified Fixed Income Portfolio Manager

    Eaton Vance

    Latest advisory blog entry

    January 8, 2016 | 4:30 PM

    2016 Outlook: The search for sustainable yields

    The Federal Reserve may have raised interest rates in December, but it continues to be a low rate environment as we begin 2016. Rather than reach for yield, we think investors should instead consider focusing on dividends that could be sustainable in this environment.

    As part of our 2016 Investment Outlook series, Portfolio Managers Michael Allison and John Crowley discussed their views on value and dividend-paying equities, including:

    • Finding sustainable yields in a low rate environment
    • Dividend-paying areas of opportunity in 2016
    • Higher volatility: Challenge or opportunity?

    Funds Managed by John Crowley
    EIFVX, EILVX, EITVX

    Funds Managed by Michael Allison
    EDIIX, EIDIX, CAPEX, EITMX, EITGX

    John Crowley

    Equity Portfolio Manager

    Eaton Vance

    Michael Allison, CFA

    Equity Portfolio Manager

    Eaton Vance

    Latest advisory blog entry

    January 7, 2016 | 2:45 PM

    2016 Outlook: Why focus on growth equities?

    Looking at historical performance as we head into 2016, investors might conclude that the cycle for U.S. growth stocks has run its course. We think that’s a mistake, and that now may actually be an opportune time to invest in U.S. growth.

    As part of our 2016 Investment Outlook series, Portfolio Managers Lew Piantedosi and Yana Barton discussed their views on growth equities in the U.S., including:

    • Why megatrends are important for the long term
    • Why stock picking will be key this year
    • The need for active share
    • Why risk needs to be redefined in 2016
    • Equity sectors that could outperform this year

    Funds Managed by Lewis R. Piantedosi and Yana Barton
    EIFGX, ELCIX, EAEAX, CAPEX, EITMX, EITGX, EACPX

    Lewis R. Piantedosi

    Team Leader, Portfolio Manager, Growth Team

    Eaton Vance

    Yana S. Barton, CFA

    Portfolio Manager, Growth Team

    Eaton Vance

    Latest advisory blog entry

    January 7, 2016 | 3:30 PM

    2016 Outlook: Can the Fed pace it right?

    Investors experienced seven years at the zero lower bound before the Federal Reserve hiked rates on December 16. We think that investors are going to be reintroduced to a word they may have forgotten about in the bond market: duration*.

    As part of our 2016 Investment Outlook series, Co-Director of Global Income Eric Stein and Portfolio Manager Andrew Szczurowski discussed their outlook for Fed policy and the impact on markets, including:

    • What to expect in terms of Fed rate hikes in 2016
    • The potential threat of inflation
    • Opportunities to consider in short-duration assets

    * Duration is the measure of the sensitivity of the price of a fixed-income investment to a change in interest rate. Duration is expressed as a number of years.

    Funds Managed by Eric Stein
    EIGMX, EGRIX, ECIIX, EICOX, ESIIX

    Funds Managed by Andrew Szczurowski
    EIGOX, EILDX, ESIIX

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    Andrew Szczurowski, CFA

    Portfolio Manager, Global Income Group

    Eaton Vance

    Latest advisory blog entry

    January 6, 2016 | 3:30 PM

    2016 Outlook: Fact and fiction with loans

    As 2015 came to an end, we saw a major disconnect between fundamental value and the actual prices of floating-rate loans changing hands in the market. We think that opportunity is knocking in the loan market today and thanks to the first Federal Reserve rate hike in nearly a decade, the higher yields of the floating-rate asset class are now that much closer.

    As part of our 2016 Investment Outlook series, Co-Directors of Bank Loans Scott Page and Craig Russ discussed their long-term view on the floating-rate loan asset class, including:

    • Separating fact from emotion in loans
    • Expectations for defaults in 2016
    • The impact of the oil and gas sector
    • How to view Libor floors on loans

    Funds Managed by Scott Page and Craig Russ
    EIBLX, EIFAX, EIFHX

    Scott Page, CFA

    Co-Director of Bank Loans

    Eaton Vance

    Craig Russ

    Co-Director of Bank Loans

    Eaton Vance

    Latest advisory blog entry

    January 6, 2016 | 2:30 PM

    2016 Outlook: An eye on inflation

    In 2015, dramatic declines in energy and commodities prices translated to the lowest inflation rates in decades. Should commodity prices merely stabilize, the strength in wages and services prices could easily push inflation rates back to or even above 2% by mid-2016.

    As part of our 2016 Investment Outlook series, Co-Directors of Diversified Fixed Income Thomas Luster and Kathleen Gaffney discussed their view on inflation in 2016 and how the effects of unexpected higher inflation could be widespread.

    Funds Managed by Thomas Luster
    EIIFX, EIGIX, EIRRX, EHCXX

    Funds Managed by Kathleen Gaffney
    EVBIX, EBTIX

    Thomas Luster, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    Kathleen Gaffney, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    Latest advisory blog entry

    January 5, 2016 | 3:45 PM

    2016 Outlook: Will muni bonds repeat?

    High tax rates and improving credit fundamentals among most local and state muni issuers helped municipal bonds outperform many other fixed-income asset classes in 2015. However, there may be an uptick in muni market volatility due to the potential for negative headlines from troubled issuers, including Puerto Rico.

    As part of our 2016 Investment Outlook series, Co-Director of Municipal Investments Craig Brandon and Senior Municipal Portfolio Manager Adam Weigold discussed what drove muni bond performance in 2015 and how the asset class could repeat in 2016, including:

    • The need for active management in the muni bond market
    • The impact of Puerto Rico on the broader market
    • Why investors should consider a total return approach

    Funds Managed by Adam Weigold
    EILMX, EICAX, EIGAX, EMAIX, MOIX, EINAX, EINJX, ENYIX, EINCX, EIORX, EIPAX, EISCX, EVAIX

    Funds Managed by Craig Brandon
    EINYX, EIHMX, EIMNX, EIMAX, EIMDX, EICAX, EIAZX, EILMX

    Craig Brandon

    Co-Director of Municipal Investments

    Eaton Vance

    Adam Weigold

    Senior Municipal Portfolio Manager

    Eaton Vance

    Latest advisory blog entry

    January 5, 2016 | 4:30 PM

    2016 Outlook: What’s driving high yield?

    The high-yield bond market has experienced significant volatility in the final months of 2015, prompting wide concern about liquidity in the market. While little has changed fundamentally for the asset class, we think there are several important points for investors to consider.

    As part of our 2016 Investment Outlook series, Director of High Yield Michael Weilheimer and High Yield Portfolio Manager Kelley Baccei discussed the recent volatility in the high yield market and what investors should watch this year, including:

    • High yield fundamentals versus technicals
    • Liquidity in the high-yield market
    • Issuance by CCC-rated issuers
    • Value in the high-yield energy sector

    Funds Managed by Mike Weilheimer
    ESHIX, EIBIX,, EIHIX, EIFHX

    Fund Managed by Kelley Baccei
    EIHIX

    Mike Weilheimer

    Director of High Yield

    Eaton Vance

    Kelley Baccei

    High Yield Portfolio Manager

    Eaton Vance

    Latest advisory blog entry

    January 4, 2016 | 2:45 PM

    China’s stock market is a sideshow

    Investor sentiment is as pessimistic as it has been at the start of any year since 2009, a year that turned out great for stocks. Whichever measure of sentiment you choose – the VIX, AAII surveys, fund manager surveys, cash levels – they all point to overly cautious positioning. Today’s sell-off in global equity markets, particularly China’s, will only serve to reassure the bears that their excessive caution is warranted.

    As we said throughout 2015, China’s economy matters, but its stock market is a sideshow. The Chinese PMI data that many market observers are blaming for the latest sell-off wasn’t even that bad. The more likely causes of the sell-off are the technical ones – first-day repositioning, circuit breakers tripping and the looming end to the 6-month moratorium on selling by 5% owners/insiders of Chinese companies.

    Behavioral economists talk about the “availability heuristic,” the mental shortcuts that human beings use to form judgments where they overweight recent experiences. The availability heuristic appears to be at work with many of the 2016 forecasts I have read – they all sound like a repeat of 2015, a flattish market with volatility and narrow leadership.

    The skeptical contrarian looks for something different to happen, even if that means embracing the unknown.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    The skeptical contrarian looks for something different to happen, even if that means embracing the unknown.

    Latest advisory blog entry

    January 4, 2016 | 2:50 PM

    2016 Outlook: Income, Volatility and Taxes

    Nothing is certain as 2016 begins. With a presidential election, worries about volatility in equity and debt markets, and uncertainty over global growth and central bank action, solving for the challenges of income, volatility and taxes will be important for investors in the New Year.

    As part of our 2016 Investment Outlook series, Chief Equity Investment Officer Edward Perkin and Chief Income Investment Officer Payson Swaffield discussed some of the opportunities and storm clouds for 2016 that they are watching, including:

    • Navigating an environment of slow growth and rising rates
    • The impact of increased volatility
    • Liquidity in debt and equity markets
    • Tax reform and the impact of taxes

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Payson F. Swaffield, CFA

    Chief Income Investment Officer

    Eaton Vance

    Latest advisory blog entry

    January 4, 2016 | 4:30 PM

    2016 Outlook: Global income opportunities

    Global volatility was a major focus over the past 12 months, particularly with growth concerns plaguing China and some emerging markets. In 2016, we think that studying the macro-economic and political fundamentals of countries around the world will be increasingly important for investors.

    As part of our 2016 Investment Outlook series, Co-Directors of Global Income Michael Cirami and Eric Stein discussed the opportunities and risks in global markets to watch for the year ahead, including:

    • Countries that are benefiting from reforms
    • Uncertainty in emerging markets
    • Widening credit spreads in sovereign debt
    • What to watch in currency markets
    • The importance of country picking

    Funds Managed by Eric Stein and Michael Cirami
    ECIIX, EIIMX, EEIIX, EGRIX, EIGMX, EICOX

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    Michael Cirami, CFA

    Co-Director of Global Income

    Eaton Vance

    Latest advisory blog entry

    December 30, 2015 | 3:30 PM

    Helping millennials keep their balance

    Over the past year, we saw many headlines about the millennial generation and their lack of trust and interest in the markets. This younger generation has seen parents go through the angst and pain of the market downturn in 2008 and early 2009. Reports pin the confusion on the plethora of talking heads and jargon in the media, and as a result millennials have largely turned away from making investments in the market.

    For these millennials, the distrust in markets is concerning. They are reaching the age where many may need to start an investment account to reach retirement goals, while others are inheriting accounts that need maintenance. Fortunately, there is one approach to investing that may be effective in addressing these concerns.

    As shown in the chart below, a moderate or so-called balanced approach to equity and debt markets has historically offered the growth potential many investors seek in order to reach their long-term financial goals. Using a multi-asset approach with a 60/40 equity-to-fixed-income split, this chart tracks performance back to 1926.

    As can be seen from this long-term timeline, this approach has earned an average annualized return of 8.7% (from 1926 through 9/30/2015), and 10.8% annualized over the past 40 years. In reality, the scary money-losing events like the downturn in 2008 and 2009, or the Great Depression of the 1930s, are once-in-a-generation occurrences. By not being in the markets, it may be difficult to achieve long-term financial goals.

    Bottom line: Rather than focusing on events like the 2008 financial crisis or daily market gyrations, younger investors should consider a big-picture, long-term perspective. A moderate or balanced approach may be able to help reach their financial goals.

    Funds Managed by Thomas Luster
    EIIFX, EIGIX, EIRRX, EHCXX

    Thomas Luster, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    Rather than focusing on events like the 2008 financial crisis or daily market gyrations, younger investors should consider a big-picture, long-term perspective.

    Latest advisory blog entry

    December 23, 2015 | 10:00 AM

    Prepare for capital to move

    The U.S. dollar is considered a marker. So when investors see recent headlines like “U.S. dollar set for worst month since April”, we think they should pay attention.

    The dollar has strengthened over the past year due to a flight to quality, as some investors nervously preferred the perceived safety of U.S. Treasurys due to fears that global growth was slowing down. This capital is now “trapped” until perceptions of growth and potential return elsewhere improve. In other words, with few alternatives, investors are complacent in today’s market.

    This preference for safety is, to us, peak market behavior. When we see a consensus trade like the U.S. dollar was in 2015, it is a strong signal to us to look for opportunities that are being ignored elsewhere. And while the timeframe is short, the weakness we’ve seen this month is due to the fact that the Federal Reserve’s first rate hike is now in the rearview mirror.

    Beyond the Fed’s rate hike, we note the recent shift by China to a basket of currencies from the U.S. dollar peg. After China’s devaluation in August and the ensuing market volatility, investors can’t be blamed for fearing a repeat. In reality, China needs to balance its reliance on exports (which requires a relatively weak yuan) and the country’s stated goal of transitioning to a consumer-led economy (which requires a relatively strong yuan). To remain pegged to the U.S. dollar is incorrect policy, in our view.

    So what will work? The shift will likely take time, but we think that a global recovery will likely come from increased demand from developed markets spurring exports from emerging markets. This transition would allow the yuan to depreciate at a slower clip, which would be a positive and it would bridge the gap to a more robust Chinese consumer-led economy in the longer run.

    If this scenario plays out as we’ve outlined, investors would likely see “trapped” capital shift away from U.S. Treasurys and the dollar to areas where return opportunities are greater, namely emerging markets and China.

    Bottom line: This would be a negative for the U.S. dollar, which has enjoyed a lot of strength. We think it makes sense to be prepared for this shift now, not after it has happened.

    Funds Managed by Henry Peabody
    EVBIX, EBTIX

    Henry Peabody, CFA

    Diversified Fixed Income Portfolio Manager

    Eaton Vance

    The dollar has strengthened over the past year due to a flight to quality, as some investors nervously preferred the perceived safety of U.S. Treasurys due to fears that global growth was slowing down.

    Latest advisory blog entry

    December 23, 2015 | 2:00 PM

    Puerto Rico's New Year challenge

    Puerto Rico’s next debt service deadline is January 1, 2016, when $902 million in total debt service across 14 different issuers comes due. We think selective defaults could occur; the Commonwealth already projects it will have negative $111 million in liquidity in January 2016, and their accounts payable has been stretched to $330 million from $260 million since the beginning of July.

    Weeks ago, Governor Padilla signed an executive order that provides Puerto Rico with the ability to claw back available revenues that support $7 billion in bonds outstanding. Puerto Rico can use these clawbacks to support general obligation (GO) bonds and essential services on the island. In light of the executive order, we believe that Puerto Rico will likely default on debt payments from the following issuers on January 1, as the following entities have revenues that are subject to the clawback executive order:

    • The Puerto Rico Infrastructure Finance Authority (PRIFA) Rum Tax
    • The Highway and Transportation Authority (HTA)
    • The Convention Center Authority (CCA)

    Importantly, while we believe that the HTA and CCA bonds will ultimately be paid on January 1, it will only be due to the fact that these issuers have debt service reserve funds that can support the bonds. However, the PRIFA Rum Tax bonds will experience a payment default; Government Development Bank President Melba Acosta recently stated that Puerto Rico “will categorically not make the PRIFA payment. That’s why we instituted the clawbacks.”

    The big question, though, involves the island’s general obligation (GO) bonds and other Commonwealth-guaranteed debt. Recent headlines noted that Puerto Rico is paying approximately $120 million in annual holiday bonuses to public employees. If Governor Padilla is willing to pay bonuses and not debt service payments on GO debt, Puerto Rico will face costly lawsuits from creditors, and therefore it is probable that Puerto Rico will pay GO-backed debt on January 1.

    Bottom line: Puerto Rico’s fiscal situation continues to deteriorate, and January 1, 2016, may be a day of reckoning for the island. Stay tuned, as we will continue to provide updates on the situation.

    William Delahunty, CFA

    Director of Municipal Research

    Eaton Vance

    Puerto Rico’s fiscal situation continues to deteriorate, and January 1, 2016, may be a day of reckoning for the island.

    Latest advisory blog entry

    December 22, 2015 | 4:15 PM

    ETF or SMA for tax efficiency?

    Exchange traded funds, or ETFs, are popular vehicles for investors seeking passive, index-based market exposures. But despite their popularity, there are structural issues which make them less than ideal for many high-net-worth investors.

    For these investors, a tax-managed separately managed account (SMA) can be designed to seek the same diversified index-like exposure while offering the potential for increased after-tax returns. Additionally, tax-managed SMAs allow greater control over the underlying securities, which can help to make portfolio transitions more tax efficient and allow for customizations to reflect an individual’s investment objectives.

    ETFs replicate index performance by purchasing all securities according to their index weight. They tend to be naturally tax efficient due to the low turnover associated with broadly diversified indexes, as well as their ability to deliver low-basis securities for in-kind withdrawals. However, while ETFs may be appropriate for some investors, high-net-worth investors facing high tax rates and holding a more complex investment portfolio may be better served through a customized tax-managed SMA.

    While the current range of indexes available through ETFs is large, and includes cap-weighted indexes, an even broader selection of indexes is available for SMAs. In addition, blended benchmarks can be targeted in these vehicles, and this blend can be changed dynamically over time as the investor’s view changes.

    And unlike ETFs, SMAs can be flexible in their holdings and still express a low tracking error to the underlying benchmark. This flexibility may result in added tax efficiencies. This is because a tax-managed SMA can be designed to seek index returns similar to those of an ETF, but with the added ability to harvest losses. Realized capital losses are valuable because they can be used to offset capital gains, thereby reducing an investor’s overall tax bill. An SMA passes capital losses through to the individual investor, while an ETF cannot.

    Excess losses realized in the portfolio can also be used to offset gains that exist elsewhere in the investor’s overall portfolio, from active manager investments, the sale of real estate, or selling concentrated stock positions. In the end, the goal is for the portfolio to track its target index while helping investors pay fewer taxes, allowing more of their money to remain invested. The compounding effect of this tax deferral can be quite powerful over time.

    Bottom line: While smaller accounts may be well-served by a simple ETF solution, investors with larger accounts should consider the additional benefits available by implementing their market index exposure through a tax-managed SMA.

    Elements of this post include comparisons of different products, each of which has distinct risks and characteristics. Every investment carries risk, and principal values and performance will fluctuate, sometimes substantially. Fees, costs, expenses and minimum investment required associated with investing in products shown will vary, sometimes substantially, depending upon specific investment vehicles chosen. Common shares of closed-end funds often trade at a discount to their net asset value per share ("NAV"). The market price of a Fund's common shares can be affected by changes in NAV and Fund distributions, fluctuations in supply and demand for the shares, changing perceptions about the Fund and other market factors. Fund shares are subject to investment risk, including possible loss of principal invested.

    Rey Santodomingo

    Director of Investment Strategy-Tax Managed Equities

    Parametric

    While smaller accounts may be well-served by a simple ETF solution, investors with larger accounts should consider the additional benefits available by implementing their market index exposure through a tax-managed SMA.

    Latest advisory blog entry

    December 21, 2015 | 4:15 PM

    Update on the Wal-Mart World

    We’ve been advocating currency hedging for quite some time based on the secular theme of the “Wal-Mart World.” The Wal-Mart World is one of massive global overcapacity left from the global credit bubble forcing countries to fight for market share by reducing the prices of their goods (i.e., depreciating their currencies).

    How serious and lasting is this secular Wal-Mart World story? A recent Bloomberg article pointed out that Chinese steel producers had so much overcapacity that to regain pricing power, they’d have to shut capacity equal to the entire capacity of Europe and Japan combined! Similar stories can be told about a broad range of industries, and politicians around the world are in no rush to lay off workers and shut capacity. Our secular theme of a strong U.S. dollar (USD) seems fully intact.

    In our view, most investors still do not recognize the importance of hedging equity currency risk. For example, many financial advisors believe that European stocks are outperforming U.S. stocks so far in 2015. In reality, Europe is underperforming U.S. stocks (and even Japanese stocks) in USD terms. In addition, an appreciating USD tends to be bad news for other asset classes, such as emerging-market debt, which happens to be another favorite among many advisors.

    People used to ask me whether the U.S. economy would mimic Japan’s. My answer was that focusing solely on the U.S. was a mistake because the credit bubble was global, making it likely that the entire global economy might mimic Japan’s. That now appears to be happening. The result is the Wal-Mart World fight for market share and the ongoing depreciation of currencies in order to compete.

    Funds Managed by Richard Bernstein
    ERBIX, EIRAX, ERMIX

    Richard Bernstein

    CEO and CIO

    Richard Bernstein Advisors, LLC

    In our view, most investors still do not recognize the importance of hedging equity currency risk.

    Latest advisory blog entry

    December 18, 2015 | 1:30 PM

    Loan market to Janet: “Thanks”

    After months and quarters of watching and waiting, the markets finally have their answer: The Fed has at last moved off the zero bound. While the buildup to this moment was both long and well-anticipated, there’s been little question over much but the timing. Finally, it’s here … and so what?

    In itself, we don’t view “liftoff” as any grand marker. It was an eventuality that was necessary, telegraphed and likely long overdue. It was “priced in” long ago. While the Fed has rightfully desired to move to a normalization of interest rates for some time – this is a first step in that direction – its long path of extremely accommodative monetary policy shows no signs of letting up soon. To be sure, this was, in fact, the “dovish hike” most expected. The Fed’s easy times shall continue.

    What does the first rate hike portend for the floating-rate loan market? On the direct impact, there really isn’t one. As most know by now, in spite of their floating coupon, loans today already earn an enhanced Libor above and beyond the actual real-world rate – that is, inclusive of artificial Libor floors, which today hover around 1% on average. So it will take four 25-basis-point Fed hikes before distributions on loan products begin to increase meaningfully. That could take much of 2016, or even extend into 2017, if we take the Fed’s guidance.

    Is this a reason to avoid the asset class? Hardly. In fact, the floor issue is nothing more than a modest delay factor when it comes to coupon adjustment. The reality is that this wonkish wrinkle aside – it matters little or possibly not at all – the current proposition in loans is already so attractive. To summarize:

    • A primarily U.S. asset class.
    • A senior/secured credit profile.
    • Limited exposure to the stress points of oil and coal (together approximately 6% of the market).
    • Low default rates (1.1% by number of issuers over the past year).
    • Current yields north of 5%, with no U.S. Treasury duration.
    • And, importantly, trading at a meaningful discount to par (average index price recently in the context of $92).

    Source: S&P/LCD

    On indirect impacts of the Fed hike, we’d guess there are more positives than anything else. For one, demand for floating-rate products generally increases in rising-rate environments. If it does again, that could deliver the upside potential inherent in today’s deep discounts. Second, the move is a good sign for the U.S. – and by extension, corporate America – a stamp of approval that then says the Fed believes the U.S. economy is on sound footing. The data agree, with 2% growth in the third quarter, the unemployment rate at its lowest level since the global financial crisis and strength in housing, auto sales, consumer sentiment and more. Importantly, corporate default statistics reflect this condition: Only a small handful of issuers have defaulted over the trailing 12 months. Net of anticipated recoveries, realized credit losses appear a likely rounding error in relation to the coupon income and imputed upside potential.

    Bottom line: We see a major disconnect between fundamental value and the actual prices of loans changing hands in the market today. Opportunity is knocking in the loan market today and thanks to Janet, the higher yields of the floating-rate asset class are now that much closer.

    Funds Managed by Scott Page and Craig Russ
    EIBLX, EIFAX, EIFHX

    Scott Page, CFA

    Co-Director of Bank Loans

    Eaton Vance

    Craig Russ

    Co-Director of Bank Loans

    Eaton Vance

    We see a major disconnect between fundamental value and the actual prices of loans changing hands in the market today.

    Latest advisory blog entry

    December 18, 2015 | 12:15 PM

    Munis back to business after the Fed

    It’s business as usual in the municipal bond market. Heading into Wednesday’s decision from the U.S. Federal Reserve (Fed) on interest rates, we saw trading in the muni bond market slow down. But once the Fed decision to hike was out of the way, it was back to normal.

    We’ve seen a muted reaction in the muni market since the Fed released its statement Wednesday afternoon. U.S. Treasury yields have been little changed over the past couple days. Muni bonds typically follow the moves in Treasurys, although to a slightly lesser degree. On Wednesday, the Barclays Municipal Bond Index* returned -0.02%; as of this writing, the Index has now returned 2.91% for the year. So muni bonds have had a fairly good year relative to a lot of other fixed-income asset classes, and we think a repeat performance is possible in 2016.

    Looking ahead, the eventual path of rate hikes from the Fed is far more important than the timing of this first rate hike. The Fed’s moves will likely be gradual and well-telegraphed. We expect short-term U.S. rates to increase more than long-term U.S. rates, resulting in a flatter yield curve.

    As of now, we don’t fully know the impact on the short end of the muni bond market. The front end of the muni yield curve is measured by the SIFMA Municipal Swap Index**, which has historically high correlations with the fed funds rate. However, the SIFMA Index resets weekly, so the reaction to the Fed decision will not be reflected until next week.

    Bottom line: It’s back to business in the muni bond market now that the Fed decision is out of the way. Historically, muni bond yields tend to move with U.S. Treasury yields. So, in the scenario of a flattening yield curve with short-term rates rising, we think intermediate- and long-term bonds may outperform short-term bonds.

    *The Barclays Municipal Bond Index is an unmanaged index of municipal bonds traded in the U.S. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

    **The SIFMA Municipal Swap Index, produced by Municipal Market Data (MMD), is a seven-day high-grade market index comprised of tax-exempt variable rate demand obligations (VRDOs) from MMD’s extensive database. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

    Funds Managed by Craig Brandon
    EINYX, EIHMX, EIMNX, EIMAX, EIMDX, EICAX, EIAZX, EILMX

    Funds Managed by Cynthia Clemson
    EIHYX, EVMBX, EICTX, EIOHX, EIMOX

    Cynthia Clemson

    Co-Director of Municipal Investments

    Eaton Vance

    Craig Brandon

    Co-Director of Municipal Investments

    Eaton Vance

    Historically, muni bond yields tend to move with U.S. Treasury yields.

    Latest advisory blog entry

    December 18, 2015 | 1:45 PM

    Government funding bill affects investors

    After weeks of negotiations, Congress reached agreement on a bipartisan bill to fund the government through September 2016. The following are provisions of particular interest to investors.

    The legislation makes permanent (including retroactively for 2015) some provisions that previously had expired every few years:

    • IRA/charitable contribution provision for accountholders over age 70 ½
    • Tax credit for research and development expenditures
    • Enhanced write-off of small business capital expenses under section 179

    The legislation extends (including retroactively for 2015) other provisions:

    • Extension and phase-out of bonus depreciation through 2019

    The legislation includes a number of new provisions:

    • Repeals the 40-year-old prohibition on exports of domestically produced crude oil
    • Expands 529 plan qualifying distributions to include student computers and technology

    The legislation delays sources of funding and government reimbursements under the Affordable Care Act:

    • “Cadillac tax” (40%) imposed on high-cost employer health plans delayed until 2020; thereafter, tax becomes deductible
    • Medical device tax delayed until 2018
    • Annual fee on health insurance provider premiums written (“belly button tax”) delayed until 2018
    • Government reimbursements for insurance company losses limited to amounts collected from profitable insurers (reimbursement fund must be revenue-neutral)

    Of interest to financial advisors, the legislation:

    • Does not prevent the Department of Labor from finalizing and implementing the proposed IRA account fiduciary rules
    • Does not make significant changes to Dodd-Frank

    Andrew Friedman

    The Washington Update

    Principal

    After weeks of negotiations, Congress reached agreement on a bipartisan bill to fund the government through September 2016.

    Latest advisory blog entry

    December 17, 2015 | 4:00 PM

    Can high yield absorb the Fed hike?

    The Federal Reserve finally decided to act yesterday and, by the market’s reaction, the rate hike seems to have already been almost fully priced in. The Fed sees a U.S. economy that is relatively healthy and growing modestly, with a low risk of recession. This has implications for our asset class, as the trajectory of the U.S. economy is the largest single factor that determines the health of the high-yield debt market.

    One question we heard most often leading up to this Fed meeting is: What will the impact of an eventual higher fed funds rate mean for our asset class? A critical factor affecting high yield’s ability to perform well in a rising rate environment is the ability for the high-yield credit spread to compress and absorb some or all of the increase in the underlying Treasury component of the yield.

    In fact, there is currently ample spread* cushion to help absorb a rate increase. As of December 15, the BofA/Merrill Lynch U.S. High Yield Index** was trading with a spread above 700 basis points (bps). According to GS Securities, this is well over 200bps above the highest spread level at which high yield began any of the previous four rate hike cycles. If one were to exclude the more stressed energy metals sectors, high yield is still trading wide of 600bps.

    Let us not forget that the single most important determinant in the health of high yield is positive growth in the U.S. economy. High yield has had only four down years in the last 30 years (as measured by the JPMorgan U.S. High Yield Index) and we are on the verge of having our fifth. Three of these down years were due to a recession. The question is: Are we on the verge of a recession? The Fed certainly doesn’t think so.

    Bottom line: If we had to pick our poison, we will gladly take a healthy economy with slow, controlled rate hikes over a weak economy with zero-interest-rate policy (ZIRP). Generally speaking, fundamentals in the high-yield universe are relatively healthy and defaults – though above multiyear lows and expected to modestly increase – still remain below long-term averages (Source: JPMorgan). In other words, we still see room for spreads to compress.

    *Spread is the difference between the yield of a security and a comparable duration U.S. Treasury.

    **BofA/Merrill Lynch U.S. High Yield Index is an unmanaged index of below-investment-grade U.S. corporate bonds.

    Funds Managed by Steve Concannon
    EIBIX, EIHIX, EBTIX, EVBIX

    Steve Concannon, CFA

    High Yield Portfolio Manager

    Eaton Vance

    Linda Carter, CFA

    High Yield Portfolio Manager

    Eaton Vance

    If we had to pick our poison, we will gladly take a healthy economy with slow, controlled rate hikes over a weak economy with zero-interest-rate policy (ZIRP).

    Latest advisory blog entry

    December 17, 2015 | 10:15 AM

    The Fed awakens

    The months of anticipation are finally over. No, I’m not referring to the new “Star Wars” movie. Yesterday, the Federal Reserve increased the fed funds rate target by 25 basis points. Seven years after it began, ZIRP (zero-interest-rate policy) is over and we are now officially on the path toward rate normalization.

    In truth, many of us saw that this December rate hike was coming, which makes today’s news anticlimactic. That said, there are two points about today’s announcement that I find interesting and worth more consideration:

    • We witnessed a tremendous amount of volatility in both the equity and high-yield markets leading up to this decision. Risk assets have been bid up as a result of quantitative easing (QE); with the market anticipating the end of QE, valuations needed to adjust. In my view, the recent volatility is not the proverbial canary in the coal mine signaling a U.S. recession. Capital is now shifting out of overpriced assets and clearing the way for fundamentals to take over.
    • Now that risk assets have started to reprice, investors should be watching movements in currencies – the U.S. dollar, in particular. In its statement, the Fed noted that net exports have been soft, and it made reference to international developments. There is no doubt that the Fed is more global in its thinking, particularly with regard to China, so currency moves will be very important. I think the Fed is saying that as long as global growth is better, the U.S. dollar will weaken. But if the dollar continues to strengthen, the Fed will respond by adjusting its pace of rate hikes.

    So what now? The market is expecting a path of gradual rate increases from the Fed, depending on data here in the U.S. and globally. However, it appears the market is operating with the view that the Fed is going to move at a gradual pace. Inflation expectations are firmly anchored. In my view, the Fed is moving now because it is confident that while oil prices have temporarily held inflation back, the core rate of inflation is moving at a sufficient pace. Today, the Fed sounded confident it has achieved its objectives and will be closely monitoring global activity. However, the market remains U.S.-focused and skeptical of global growth.

    Bottom line: We all knew this rate hike was coming, so the reaction hasn’t been significant. But, investors should not lose sight of the fact that this move has opened the gates for capital to start moving. Going forward, global markets and currencies will be what matter.

    Funds Managed by Kathleen Gaffney
    EVBIX, EBTIX

    Kathleen Gaffney, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    We all knew this rate hike was coming, so the reaction hasn’t been significant.

    Latest advisory blog entry

    December 16, 2015 | 4:30 PM

    Liftoff has begun. Sun will rise tomorrow.

    Well, they finally did it. After much fanfare and market angst that really began in the late spring of 2013 during the “Taper Tantrum,” the U.S. Federal Reserve (Fed) finally got off the zero-lower bound and raised interest rates by 25 bps to its new target rate of 25-50 bps.

    Markets were moving around a little bit following the meeting, with U.S. Treasury yields modestly higher and equities up. But the moves were quite muted relative to the hype surrounding this meeting, as the Fed had essentially pulled “volatility forward” with all of its previous forward guidance. That was, in fact, its plan all along. In effect, all of the volatility around the Taper Tantrum, etc. allowed the Fed to create less volatility today.

    While the Fed’s statement today had both dovish elements (using the word “gradual” multiple times and saying the Fed’s balance sheet would remain at the same size for some time after the hiking cycle begins) and hawkish elements, it certainly wasn’t the fully “dovish hike” that many had been looking for: It was a unanimous 25 bps hike accompanied by only a relatively small downshift in the Fed’s “dot-plot,” versus expectations for a much sharper decline in the “dot-plot” rates.

    While markets will continue to parse every word, dot and comma from the Fed over the next few days, it will also be important to see how the fed funds effective rate trades over the course of the next few days. Given the Fed’s very large balance sheet, there has been some doubt over whether or not the Fed can actually raise the fed funds rate. It has certainly given the New York Fed Open Markets Desk some new tools, such as the Overnight Reverse Repo Program (RRP). While many expected the Fed to limit the size of the RRP program, it has at least temporarily made this program unlimited, as it’s very focused on making the fed funds rate trade in the 25-50 bps corridor. If the Open Markets Desk is able to get the fed funds rate to trade within this range, I think that it will be a confidence boost for the broader markets.

    Bottom line: While the first rate hike in over nine years and getting off the zero-lower bound are symbolically very important events, what financial markets will really be focused on in 2016 is the pace of the rate-hiking cycle going forward. The FOMC has indicated that it will very much be in a data-dependent mode, with developments in the U.S. economy, U.S. inflation, the financial markets and the global economy (likely in that order, as the FOMC reflected in its statement today) all affecting the pace and magnitude of the rate-hiking cycle in 2016. It appears the Fed would very much like to raise rates four times next year (once per quarter), whereas markets are currently pricing in two or three rate hikes next year.

    Funds Managed by Eric Stein
    EIGMX, EGRIX, ECIIX, EICOX, ESIIX

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    While the first rate hike in over nine years and getting off the zero-lower bound are symbolically very important events, what financial markets will really be focused on in 2016 is the pace of the rate-hiking cycle going forward.

    Latest advisory blog entry

    December 16, 2015 | 3:45 PM

    The Fed’s impact on equities

    As expected, the Fed raised rates by 25 basis points today. The accompanying statement was fairly dovish. Fed funds futures are now pricing in the next rate hike for June.

    One industry that has become very popular of late with equity investors is the banks. Investors believe that bank stocks will benefit from higher short-term interest rates, as they are able to reprice their loan books faster than they raise what they pay to depositors. We are skeptical of this reasoning, as the easy movement of balances, combined with competition for deposits, may yield less net interest margin benefit to the banks than generally perceived.

    More broadly for the equity market, with a green light from the Fed against a backdrop of generally poor sentiment toward riskier asset classes – and with annual tax loss selling now largely behind us – we may be in for a so-called “Santa Claus rally” after all.

    Bottom line: Looking into 2016, we have a balanced view of the U.S. equity market and expect periodic bouts of volatility to give long-term investors the opportunity to deploy capital at potentially attractive returns.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Looking into 2016, we have a balanced view of the U.S. equity market and expect periodic bouts of volatility to give long-term investors the opportunity to deploy capital at potentially attractive returns

    Latest advisory blog entry

    December 14, 2015 | 4:00 PM

    What could go wrong?

    All signs point to the Federal Reserve raising rates when it meets later this week. In this video previewing the Federal Open Market Committee’s two-day December meeting, portfolio manager Eric Stein discusses how the Fed’s decision could affect markets.

    Funds Managed by Eric Stein
    EIGMX, EGRIX, ECIIX, EICOX, ESIIX

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    Latest advisory blog entry

    December 11, 2015 | 2:45 PM

    The government stays open … for now.

    Congress has agreed to fund the government for another five days – through December 16 – to give it time to work out longer-term appropriations legislation. The sides are furiously negotiating that appropriations bill, but progress has been slow. The sticking points mostly involve what policy “riders” should be attached to the final legislation. Most of these riders are not directly related to government funding. For instance, Republicans want riders to stop the flow of Syrian refugees and roll back some of Dodd-Frank.

    There also is talk of a rider to prevent the Department of Labor from implementing its IRA fiduciary proposal. The Republicans want a rider to stop DOL, but the White House does not. The question is whether Democrats on the Hill will agree to the DOL rider and, if they do, whether the president is willing to shut down the government over that rider and any others with a veto.

    Also tangled up with the appropriations bill is the need to pass “tax extenders” legislation, reinstating tax code provisions that expired last year. Many of these provisions benefit businesses through items such as enhanced depreciation deductions. Also included is the IRA/charitable contribution provision for individuals over age 70 ½. The hope is to make these provisions effective retroactively for 2015 and through 2016 (although some negotiators would prefer to make some of the provisions permanent).

    Andrew Friedman

    The Washington Update

    Principal

    Congress has agreed to fund the government for another five days – through December 16

    Latest advisory blog entry

    December 10, 2015 | 4:30 PM

    Positive signals from emerging markets

    Emerging markets have come under pressure this year, but there are signals a shift may be coming. In an interview with Consuelo Mack on WealthTrack, portfolio manager Kathleen Gaffney discusses how fundamental investing can help differentiate among emerging markets to find opportunities.

    Funds Managed by Kathleen Gaffney
    EVBIX, EBTIX

    Kathleen Gaffney, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    Latest advisory blog entry

    December 9, 2015 | 4:00 PM

    The end of the beginning

    After a string of defeats in the early years of World War II, the British Army scored a major victory against Rommel's Afrika Corps at the Battle of El Alamein in late 1942. Bolstered by the news, Winston Churchill delivered to Parliament his frank assessment of how the war was going. His most memorable line was, "Now this is not the end. It is not even the beginning of the end, but it is, perhaps, the end of the beginning."

    The latter phrase is an apt way to describe the current state of the U.S. credit cycle. The price and availability of credit have an important influence on the economy, the stock market and, of course, the bond market. Economic recoveries and bull markets in stocks usually begin during a period of easy credit, characterized by falling interest rates and increased availability of money from investors and lending institutions. Recoveries and bull markets end during a period of tighter credit.

    It seems clear that the U.S. credit cycle reached an important inflection point in late 2015. The period of near-zero short-term interest rates is drawing to a close. The Federal Reserve is likely to raise interest rates modestly at its meeting on December 16th — its first rate hike in nearly a decade. Credit spreads—the yield gap between lower-quality and higher-quality bonds — have widened steadily over the past 12 months. This indicates that investors are becoming much more quality-conscious, while the availability of money to finance risky ventures is diminishing.

    I would describe credit conditions as becoming moderately tighter. Our credit indicators are not yet signaling the beginning of the end of the economic expansion and equity bull market, but they are not nearly as supportive of the economy and stock market as they once were.

    What steps should investors consider in the current credit climate?

    • First, continue to favor U.S. stocks over bonds and most alternative investment strategies, such as hedge funds and private equity. The upcoming "tightening" cycle is likely to be both modest and lengthy by historic standards because economic conditions in the rest of the world are generally weak.
    • Second, focus on high-quality stocks and bonds. The unprecedented period of easy money (2009-2015) is now ending. Over the past eight years, lower-quality, more speculative stocks and bonds have sharply outperformed higher-quality issues. This quality trend is in the process of reversing, in my view.
    • Lastly, keep an eye on inflation, particularly wage inflation. From near-zero inflation in late 2015, the trend in inflation should begin to accelerate in 2016. How quickly inflation rises will play a key role in how often and how high the Fed raises interest rates. I expect that the current economic and stock market cycle will end as most cycles do, with the Fed aggressively tightening credit to rein in inflation and excesses in the economy.

    Bottom line: Next year should not mark the end of the U.S. credit cycle, but the beginning of the end may well come into view.

    Past performance is no guarantee of future results.

    Bill Hackney, CFA

    Senior Partner

    Atlanta Capital Management

    Next year should not mark the end of the U.S. credit cycle, but the beginning of the end may well come into view.

    Latest advisory blog entry

    December 8, 2015 | 3:30 PM

    U.S. vs. Europe

    The Manufacturing Purchasing Managers Index (PMI), a leading economic indicator, has been steadily worsening in the U.S. over the past 18 months, while it has been steadily improving in the eurozone. In fact, the Markit PMI reading for Europe is now marginally ahead of that of the U.S.

    In addition, our recent conversations with a number of corporate management teams also appear to confirm that there are pockets of creeping economic strength in Europe and pockets of creeping weakness in the U.S.

    The seeming convergence between the fortunes of the U.S. and European economies is not matched by the behavior of their respective central banks:

    • Last week, the European Central Bank (ECB) cut deposit rates to minus-30 basis points and extended quantitative easing (QE) until March 2017.
    • Meanwhile, barring any unforeseen negative news over the next week or so, the U.S. Federal Reserve (Fed) appears ready to raise short-term interest rates by 25 basis points at its next policy meeting on December 16.

    In our view, it seems likely that at least one of these central banks may be making a major policy mistake. Time will tell.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    In our view, it seems likely that at least one of these central banks may be making a major policy mistake.

    Latest advisory blog entry

    December 7, 2015 | 4:15 PM

    Will tobacco bonds go up in smoke?

    Tobacco bonds have become popular with investors thanks to attractive yields, federally tax-exempt income and double-digit returns this year. The sector has handily outpaced the broader municipal bond market in 2015, with investors turning to tobacco bonds as an option in today’s low-yield environment. But are investors being adequately compensated by taking on this credit risk?

    Despite their popularity, tobacco bonds may be largely misunderstood by some investors. Unlike traditional municipal securities, these bonds are issued by states and are backed by proceeds from the Tobacco Master Settlement Agreement (MSA), which in 1998 settled lawsuits for medical costs associated with tobacco use. Payments made by the three largest U.S. tobacco companies to the states are based largely on shipments of domestic cigarettes.

    Many states securitized this annual payment stream, so tobacco bonds’ performance is tied principally to sales of tobacco. The issuers – with the exception of certain deals in a small number of states – are not required to step in if the MSA payments fall short. In other words, the credit profile of a tobacco bond is not tied to the credit-worthiness of the issuing state.

    In 2015, tobacco credit fundamentals improved slightly due to lower demand declines, as spending on tobacco has climbed due to lower gas prices and an improving U.S. economy. However, we remain concerned about the many uncontrollable long-term negative credit drivers. While the year-to-date returns and attractive yields have spurred demand for tobacco bonds, demand declines for actual tobacco products are set to be the largest driver of credit performance for these bonds going forward. Some of the reasons cigarette demand could decline further include:

    • Increasing social pressure to quit smoking
    • Potentially higher excise taxes
    • Increased regulation of menthol products
    • Emergence of eCigarettes and other alternatives
    • Consolidation among tobacco companies

    It remains extremely difficult to predict the nature, timing and severity of the credit and sector shocks and the corresponding effects on pricing. We have already seen that the tobacco sector can be extremely volatile; during the municipal bond market sell-off in 2013, tobacco bonds had the second-worst return of all the sectors in the Barclays High Yield Municipal Bond Index, eclipsed only by Puerto Rico bonds.

    Although we believe long-term pricing volatility will persist, a potential buying opportunity could surface if spreads on tobacco bonds widen and credit fundamentals improve. Some tobacco bonds could become attractive at low enough price levels. That said, the tobacco sector is currently rich based on six years of historical pricing, in our view.

    Bottom line: If cigarette shipments decline as we expect them to, the risk of default on tobacco bonds increases. Due to the potential for widespread defaults in the tobacco sector, we believe more attractive options currently exist in the municipal bond market for investors in need of federally tax-exempt income.

    A portion of municipal bond income may be subject to alternative minimum tax. Income may be subject to state and local tax.

    Funds Managed by Cynthia Clemson
    EIHYX, EVMBX, EICTX, EIOHX, EIMOX

    Cynthia Clemson

    Co-Director of Municipal Investments

    Eaton Vance

    If cigarette shipments decline as we expect them to, the risk of default on tobacco bonds increases.

    Latest advisory blog entry

    December 4, 2015 | 2:15 PM

    All systems go for the Fed

    The U.S. Labor market continued on solid footing in November, adding 211,000 jobs, above expectations of 200,000. For all those concerned about a slowing labor market, year to date the U.S. economy has averaged 210,000 job gains per month, and November’s number was slightly above that average. In other words, this payrolls report was solid all around and certainly will not deter the Fed’s plan of a December rate hike:

    • While the unemployment rate remained at 5% this month, the Fed will be encouraged.
    • The U.S. remains a service-driven economy and the private service sector remains the primary driver of growth in the labor market, adding 163,000 jobs in the month and over 2.1 million YTD.
    • While many have been wondering when the U.S. consumer would begin spending their extra savings from lower oil prices, it would seem they have been at bars and restaurants, as 32,000 jobs were added in that sector during November.
    • Within the goods-producing sector, the construction industry remains very strong, adding 46,000 jobs during November, the highest monthly gain since January 2014.
    • While average hourly earnings fell from 2.5% year over year to 2.3%, this is temporary due to the base effect (dropping off a strong number last November) and we will likely see a strong jump up next month as we drop off a weak December 2014 print.

    Bottom line: It has certainly been an interesting seven years at the zero lower bound, but alas the time has come and Janet Yellen has the fed funds launch pad prepared for December 16. “Don’t fight the Fed” was a popular phrase during the various quantitative easing (QE) programs and one that we believe also holds true as the Fed exits the zero lower bound. Investors are going to be reintroduced to a word they may have forgotten about in the bond market: duration.

    Funds Managed by Andrew Szczurowski
    EIGOX, EILDX, ESIIX

    Andrew Szczurowski, CFA

    Portfolio Manager, Global Income Group

    Eaton Vance

    It has certainly been an interesting seven years at the zero lower bound, but alas the time has come and Janet Yellen has the fed funds launch pad prepared for December 16.

    Latest advisory blog entry

    December 3, 2015 | 4:00 PM

    Three cornerstone stocks

    From China to the Fed to the 2016 election, just to name a few, there’s no shortage of cross-currents to navigate in today’s global market environment. What’s an investor to do?

    One strategy is to focus on good old-fashioned stock picking. In a recent interview on the Nightly Business Report, Lew Piantedosi discusses his approach and three specific stocks he likes for the long term.

    Funds Managed by Lewis R. Piantedosi
    EIFGX, ELCIX, EAEAX, CAPEX, EITMX, EITGX, EACPX

    Lewis R. Piantedosi

    Team Leader, Portfolio Manager, Growth Team

    Eaton Vance

    Latest advisory blog entry

    December 2, 2015 | 11:00 AM

    Puerto Rico makes an emergency move

    On Tuesday, Puerto Rico averted another default by making a $355 million payment on principal and interest due on debt issued by the island’s Government Development Bank (GDB). Avoiding a default is significant news for Puerto Rico, but the GDB President on Tuesday stated that, “Puerto Rico’s liquidity position is severely constrained at this time” and that “the Commonwealth’s overall fiscal position remains tenuous.”

    This statement was solidified on Tuesday as Governor Padilla signed an executive order that provides the Commonwealth with the ability to claw back certain “available revenues” that support $7 billion in bonds outstanding. Instead, these clawbacks will be used to support Puerto Rico general obligation (GO) bonds and essential services on the island. Padilla stated, “In simple terms we have begun to default on our debt in an effort to attempt to repay bonds issued with the full faith and credit of the Commonwealth and secure sufficient resources to protect the life, health, safety and welfare of the people of Puerto Rico.”

    The next debt service deadline is January 1, 2016, when $992 million in total debt service across 14 different issuers comes due. In light of the executive order, we believe that Puerto Rico will likely default on some debt payments on that date or draw on their debt service reserve funds, potentially on bonds issued by:

    • The Infrastructure Finance Authority
    • The Highway and Transportation Authority
    • The Convention Center Authority

    These entities have revenues subject to the clawback executive order. Puerto Rico does not have access to Chapter 9 bankruptcy laws, so they are attempting to drive towards a voluntary restructuring process with its creditors, which will be extremely challenging. However, in light of the clawback and in an attempt to avoid costly lawsuits, it is possible that Puerto Rico will pay GO-backed debt on January 1.

    To be sure, the fiscal situation continues to deteriorate on the island, as revenue estimates for the fiscal year ending June 30, 2016, have been revised down (from $9.8 million to $9.2 million) and the Commonwealth’s cash flow forecast now shows that it is expected to end the fiscal year with negative $775 million in liquidity.

    Bottom line: While Puerto Rico once again dodged a bullet on Tuesday, an even larger debt service payment looms on January 1. We think selective defaults could occur at that point.

    William Delahunty, CFA

    Director of Municipal Research

    Eaton Vance

    While Puerto Rico once again dodged a bullet on Tuesday, an even larger debt service payment looms on January 1.

    Latest advisory blog entry

    December 1, 2015 | 11:15 AM

    Countdown to the Fed decision

    In two weeks, the FOMC will meet for the final time in 2015. At its last couple meetings, the Fed defied many investors’ expectations by holding off on its first interest-rate hike since 2006, mainly citing global financial developments. Will this time be different?

    The market seems to think so: As of November 30, 2015, the market was factoring in a 74% probability of a rate increase in December. For our part, we think the odds may actually be greater than that. A close look at the recent Fed minutes makes it clear that the Fed wants to begin liftoff sooner rather than later, and the economic data supports moving in that direction. While the data has been somewhat choppy lately, note that:

    • The last reported jobs number was quite encouraging, and the labor market overall continues to be strong. A labor market this strong is certainly not consistent with near-zero short-term interest rates.
    • While inflation is below the Fed’s target right now, the Fed is “reasonably confident” that it will reach the target. Additionally, some of the base effects from oil’s sharp decline in late 2014 may begin to roll off and make inflation prints somewhat higher in 2016.

    To be sure, a December rate hike is not a done deal, and there are still plenty of skeptics who believe the Fed will wait until the first half of 2016 or even later. That being said, we think the bar for what could dissuade the Fed from hiking in a couple weeks is set pretty high.

    In our view, it would have to be something really bad or unexpected – for example, a sharp downturn in the incoming economic data or a major selloff in global financial markets. Unpredictable events like the recent terrorist attacks in Paris are certainly tragic and significant from a geopolitical perspective, but from the Fed’s standpoint regarding rates, it’s mostly about the U.S. economy and the markets in terms of how they feed through to the economy.

    Bottom line: The first rate hike in nearly a decade is coming, with more likely to follow. We think the markets may be volatile in the period ahead, whether due to the Fed, China, geopolitical issues or some combination thereof. In this type of environment, we continue to believe that many investors may benefit from having a flexible income strategy that can take both long and short positions in countries around the world.

    Funds Managed by Eric Stein
    EIGMX, EGRIX, ECIIX, EICOX, ESIIX

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    The first rate hike in nearly a decade is coming, with more likely to follow.

    Latest advisory blog entry

    November 30, 2015 | 3:15 PM

    The big question on global growth

    World growth may be stronger than many expect, thanks to improvement in Europe. However, China remains a wild card as we look ahead to 2016. In an interview with Consuelo Mack on WealthTrack, portfolio manager Kathleen Gaffney shares her view on China’s impact on the global growth picture.

    Funds Managed by Kathleen Gaffney
    EVBIX, EBTIX

    Kathleen Gaffney, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    Latest advisory blog entry

    November 27, 2015 | 9:15 AM

    Three reasons to buy growth now

    Looking at historical performance, investors might conclude that the cycle for U.S. growth stocks has run its course. We think that’s a mistake, and that now may actually be an opportune time to invest in U.S. growth.

    Through the end of October 2015, the Russell 1000 Growth Index (R1G)* outperformed the Russell 1000 Value Index (R1V)** and the MSCI World ex USA Index*** over the past one-, three-, five- and 10-year periods. Over the past 12 months, the R1G has outdistanced the R1V by over 800 basis points and the MSCI World ex USA by over 1,000 basis points. So the natural question is—how long can that continue? In our opinion, it can continue for quite a while.

    Growth stocks have led the way in recent years
    Annualized total returns through 10/31/15
     
    1 year 3 years 5 years 10 years
    Russell 1000 Growth 9.18 17.94 15.30 9.09
    Russell 1000 Value 0.53 14.52 13.26 6.75
    MSCI World ex USA -1.36 7.40 4.70 4.51

    Sources: Morningstar, MSCI Inc.

     

    There are three reasons why we think so:

    1. We believe U.S. corporate earnings expectations have been reset. From the fourth quarter of 2015 on, we expect to see generally better earnings growth, especially in the information technology, health care and consumer sectors.

    2. The U.S. should continue to experience relatively strong GDP growth. In its latest World Economic Outlook, the World Bank projects that U.S. GDP will grow 2.5% in 2015 and 3.0% in 2016. That’s faster than both the eurozone and Japan. It’s slower than China, the world’s second-largest economy, but China’s growth rate is cooling. Many U.S. companies stand to benefit from these relative trends.

    3. Stocks have historically tended to move higher after an interest-rate increase. In fact, most economists expect the Fed to be cautious in hiking U.S. rates, and history shows that the more protracted the rate-tightening cycle, the better for equities. The equity risk premium is currently as low as it’s been in years.

    *The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe.
    **The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe.
    ***The MSCI World ex USA Index measures the performance of large-cap and mid-cap stocks across global developed equity markets, excluding the United States.

    Past performance is no guarantee of future results. Unless otherwise stated, index returns do not reflect the effect of any applicable sales charges, commissions, expenses, taxes or leverage, as applicable. It is not possible to invest directly in an index. Historical performance of the index illustrates market trends and does not represent the past or future performance of the fund.

    Funds Managed by Lewis R. Piantedosi and Yana Barton
    EIFGX, ELCIX, EAEAX, CAPEX, EITMX, EITGX, EACPX

    Lewis R. Piantedosi

    Team Leader, Portfolio Manager, Growth Team

    Eaton Vance

    Yana S. Barton, CFA

    Portfolio Manager, Growth Team

    Eaton Vance

    We believe U.S. corporate earnings expectations have been reset. From the fourth quarter of 2015 on, we expect to see generally better earnings growth, especially in the information technology, health care and consumer sectors.

    Latest advisory blog entry

    November 25, 2015 | 1:00 PM

    The big surprise for 2016

    When the holiday season starts, we’re often asked what the biggest investment opportunity will be in the coming year. To us, the biggest surprise for investors in 2016 very well may be that inflation once again becomes a significant investment risk, particularly if the energy markets stabilize or move higher.

    Unfortunately, many investors are poorly positioned to protect the purchasing power of their savings and investments if inflation surges. It’s easy to understand why: for more than a year, the headline number on the consumer price index (CPI) has been under downward pressure due to the sharp declines in energy and commodities markets.

    It is that weakness that has masked the upward trend in services inflation. For instance, in the October CPI report, core services (58% of headline CPI) grew at a 2.8% year-over-year (YOY) rate. To us, it appears the worst of the energy and commodities bear markets now appear to be past.

    In particular, we note that services inflation is gaining strength, and wages finally appear to be breaking out to the upside:

    • Services inflation is quickly becoming about more than just shelter. Core CPI Services (excluding rental inflation) has turned higher and is now firmly above 2%.
    • In October, nine of the 15 CPI categories contributed positively to headline CPI. This is the highest diffusion rate in 18 months.
    • There is finally solid evidence of wage growth. YOY average hourly earnings (AHE) have touched 2.5% for the first time in six years. In past cycles, as AHE’s breach 2.5%, the trend accelerates and remains in place for two to three years.

    Even more to the point, all else being equal, YOY headline inflation will increase simply due to the base effect of sharply lower energy. The monthly declines in headline CPI over the last year created a lower base from which to measure future year over year inflation rates. Now those highly negative monthly CPI prints created by the weakness in food and energy are running off.

    Because of this base effect, even if month-to-month headline CPI growth averages zero percent over the next three reports, the YOY change in headline CPI will increase from its current 0.2% rate to 1.8%. Of this 1.6% increase, the base effect from energy accounts for nearly 1.3%. Given the nearly 8% weight that energy holds in the CPI basket, a move higher in oil (for example, to $51 per barrel over the next year) would push headline YOY inflation near 3%.

    In other words, to keep inflation at the current benign year over year levels it would take another sharp leg lower in energy. In either instance, this would be more inflation than the Treasury markets are currently priced for and could generate a strong bid for inflation-linked assets that, by our view, are currently priced extremely cheaply.

    Bottom line: In the scenario outlined above, floating-rate and real-return investments would be expected to perform well, while negative real returns (the return when adjusted for inflation) on fixed-income investments with a fixed rate and maturity become more likely.

    Fund Managed by Stewart Taylor
    EIRRX

    Stewart Taylor

    Diversified Fixed Income Portfolio Manager

    Eaton Vance

    Floating-rate and real-return investments would be expected to perform well, while negative real returns (the return when adjusted for inflation) on fixed-income investments with a fixed rate and maturity become more likely.

    Latest advisory blog entry

    November 24, 2015 | 11:15 AM

    The classic investing mistake

    Investor behavior has always been a popular research topic. For example, if you search for “behavioral finance” on Amazon, you’ll find 2,877 items. In particular, we have seen investor behavior closely scrutinized for the past 20 years.

    One research company, DALBAR, publishes an annual study on the subject. Perhaps the most interesting information one gleans from the study is just how much the average equity or fixed-income investor underperforms their corresponding benchmark index.

    For example, for the five-year period ended December 31, 2014 (the most recent DALBAR study period), the average equity investor’s return was 10.19% annualized, versus 15.45% for the S&P 500 Index. That’s an average annual gap of 5.26%! Similarly, the average fixed-income investor lagged the Barclays Aggregate Bond Index by 3.24% annualized over the five-year period.

    Why does the average investor underperform the market by such a wide margin? The reason is simple: Most investors tend to sell their losing funds and buy more of those funds that have been doing well. In investment jargon, it’s the classic mistake of “buying high and selling low.”

    We suggest that investors consider an investment solution that has stood the test of time, yet remains underutilized by most investors: A moderate allocation or balanced approach to investing. The equity/fixed-income asset allocation is already built into the approach, provides sufficient diversification for many investors and has proven over long periods to deliver competitive returns with meaningfully less risk than an all-equity portfolio.

    Bottom line: Sometimes the simplest tools are the most effective. A simple balanced portfolio of stocks and bonds supplies a ready-made asset allocation plan and removes the all-too-human temptation to trade at the exact wrong time.

    Diversification cannot ensure a profit or eliminate the risk of loss.

    Kiersten Christensen

    Institutional Portfolio Manager

    Eaton Vance

    Sometimes the simplest tools are the most effective.

    Latest advisory blog entry

    November 23, 2015 | 10:45 AM

    When to expect corporate tax reform

    High corporate tax rates have the U.S. corporate economy at a distinct disadvantage. Both sides of Congress agree that corporate tax reform is needed, but no changes have materialized. At Eaton Vance’s 2015 Investment Perspectives Luncheon in New York, portfolio manager Eddie Perkin shared his view on when to expect these reforms.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Latest advisory blog entry

    November 20, 2015 | 12:30 PM

    A U.S. recession in 2016?

    Could the U.S. economy experience a recession next year? At Eaton Vance’s 2015 Investment Perspectives Luncheon in New York, portfolio manager Eddie Perkin shared some anecdotal evidence that has him considering the possibility.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Latest advisory blog entry

    November 20, 2015 | 1:15 PM

    One overlooked strategy for a low-yield world

    There is a major debate about how much and how soon the Federal Reserve will increase short-term interest rates. I am inclined to think that conflicting economic data (weak commodity prices, weak PMIs, slowing housing, high inventories) are more likely than not to lead to a series of small, gradual rate increases. But it is important to take any such prediction (including mine) with a significant grain of salt, and to avoid making significant investments based on a misplaced level of confidence in any interest rate prediction. I think it is far better to allow long-term goals and risk tolerance to influence portfolio decisions.

    Given that view, and in this continued low-rate environment, investors who are starved for yield might find what they’re looking for in the real estate investment trust (REIT) sector. As can be seen from the chart below, the dividend yield in the REIT space has consistently outpaced inflation, the general equity market dividend yield and, importantly, the fixed-income market yield. While we do believe interest rates will begin to rise at some point, we think this chart demonstrates the potential advantage of having an allocation to REITs in any interest rate environment.

    I also believe REITs have another important feature to consider. With more than 200 REITs to choose from and an industry market cap of more than $900 billion, investors have not only choices (such as property type and geographic market) but also the potential to more easily get in and get out as needed. Many investors might prefer a diversified mutual fund over picking individual REIT stocks, as that approach provides similar liquidity benefits without the burden of stock picking.

    Bottom line: In a low-yield world, we suggest looking at the often overlooked REIT group for a potential source of consistent, reliable and growing income.

    Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry, including REITs.

    Fund Managed by Scott Craig
    EIREX

    Scott Craig

    REIT Portfolio Manager

    Eaton Vance

    In a low-yield world, we suggest looking at the often overlooked REIT group for a potential source of consistent, reliable and growing income.

    Latest advisory blog entry

    November 20, 2015 | 3:00 PM

    Why fiscal policy matters

    With so much attention devoted to the Federal Reserve and monetary policy, few investors have been considering the importance of fiscal policy in the U.S. At Eaton Vance's 2015 Investment Perspectives Luncheon in New York, portfolio manager Richard Bernstein explains why fiscal policy could end up being a positive in 2016.

    Funds Managed by Richard Bernstein
    ERBIX, EIRAX, ERMIX

    Richard Bernstein

    CEO and CIO

    Richard Bernstein Advisors, LLC

    Latest advisory blog entry

    November 18, 2015 | 2:00 PM

    Combat the threat of rising rates

    The Federal Reserve appears to be preparing to hike short-term interest rates for the first time since 2006, leaving individual investors and financial advisors with the challenge of building defensive bond portfolios. How can you prepare for rising rates?

    While rising rates are generally negative for fixed-income investments, a laddered portfolio has the potential to mitigate or even completely offset the price impact of higher rates. Moving to an evenly weighted portfolio is a conscious asset allocation decision an investor can take today to become more defensive in anticipation of higher rates. An evenly weighted ladder should offer a more advantageous balance between price risk and reinvestment risk.

    As shorter bonds roll out of the lower-ladder range, the proceeds may be reinvested at the higher-yielding upper-ladder range, assuming a positively sloped yield curve*. This has the potential effect of raising the yield of the portfolio. The result can be positive income and total return even in rapidly rising rate environments.

    Our recently redesigned Eaton Vance Laddered Municipal Bond Interest Rate Scenario Tool can help illustrate this concept. This tool may help quantify a general range of potential returns based on interest-rate expectations going forward.

    Bottom line: A laddered municipal bond portfolio may experience an increase in estimated annual income and annual return, even as interest rates rise over the five-year period. This can be particularly helpful to investors who want to achieve an attractive total return regardless of the interest-rate environment, but want to minimize price and reinvestment risk.

    *Yield curve is a graphical representation of the yields offered by bonds of various maturities. The yield curve flattens when long-term rates fall and/or short-term rates increase, and the yield curve steepens when longterm rates increase and/or short-term rates fall.

    Jon Rocafort

    Co-Director of SMA Strategies, Tax-Advantaged Bond Strategies

    Eaton Vance

    A laddered municipal bond portfolio may experience an increase in estimated annual income and annual return, even as interest rates rise over the five-year period.

    Latest advisory blog entry

    November 18, 2015 | 4:00 PM

    Will the U.S. dollar continue to strengthen?

    The U.S. dollar has strengthened against many of the world's currencies this year, making the greenback one of 2015’s most crowded trades. With the Fed mulling a rate hike later this year, many investors are wondering if the U.S. dollar will continue to rise against other currencies.

    At Eaton Vance's 2015 Investment Perspectives Luncheon in New York, portfolio managers Eric Stein and Eddie Perkin offered their views on whether the U.S. dollar’s recent strength will continue in the near term.

    Investment Perspectives Luncheon

    Eaton Vance

    Latest advisory blog entry

    November 17, 2015 | 4:15 PM

    Be like Jeter

    Practicing basic fundamentals is critical to one’s success in any endeavor. In baseball, it means the mundane and repetitive task of taking ground balls in spring training. Successful players are typically willing to go through the monotony to hone their skills.

    Derek Jeter, a likely first-ballot Hall of Famer, never forgot the fundamentals. Regardless of how many records he broke or how well the Yankees did under his captaincy, Jeter routinely practiced the fundamentals. He realized that success came from mastering those fundamentals.

    Investors too often forget that practicing the basic fundamentals is critical to their success, too. Metaphorically, they forget to cover first base on a grounder to the right side, to hit the cutoff man and to never pitch to a batter’s sweet spot on an 0-2 count. For equities, it’s all about focusing on the basics of what drives stock prices over the long term and ignoring the ever-present short-term distractions.

    Finance 101 says there are two, and only two, variables that affect equity prices: earnings and interest rates. But consider all the other variables to which investors pay attention that are ultimately not that relevant. Just to name a few, politics, geopolitics, GDP and other macroeconomic data, and fund holdings may provide more noise and distraction than useful information if one doesn’t directly connect them to earnings and interest rates.

    A basic fundamental analysis of earnings and interest rates helps to explain why the stock market has recently gyrated. The Fed is “threatening” to tighten interest rates, while the U.S. is in a profits recession (which many investors don’t realize). The stock market is behaving exactly as the fundamentals tell us it should, but investors’ recent range of emotions suggests they have taken their eye off the ball.

    If one thinks the Fed will wait to raise rates (as we do), and that the profits cycle will trough by year-end (as we do), then it follows that 2016 might be a good year for U.S. stocks. However, if one thinks the Fed will raise rates sooner and the profits cycle will trough later, then it makes sense to believe that market volatility could persist for a while.

    Bottom line: It isn’t very sexy to invest in equities using a commonplace approach based on fundamentals, but no one gets to the Hall of Fame without mastering the basics.

    Funds Managed by Richard Bernstein
    ERBIX, EIRAX, ERMIX

    Richard Bernstein

    CEO and CIO

    Richard Bernstein Advisors, LLC

    It isn’t very sexy to invest in equities using a commonplace approach based on fundamentals, but no one gets to the Hall of Fame without mastering the basics.

    Latest advisory blog entry

    November 16, 2015 | 10:15 AM

    Will the Fed move gradually?

    The Federal Reserve says it is on a gradual path as it normalizes interest rates. But has the Fed’s window of opportunity to move gradually passed by? At Eaton Vance’s 2015 Investment Perspectives Luncheon in New York, portfolio manager Kathleen Gaffney said that the Fed runs the risk of having to raise rates more quickly than it would like.

    Funds Managed by Kathleen Gaffney
    EVBIX, EBTIX

    Kathleen Gaffney, CFA

    Co-Director of Diversified Fixed Income

    Eaton Vance

    Latest advisory blog entry

    November 16, 2015 | 10:00 AM

    An economic number worth watching

    The current economic and stock market upcycles might be getting a little “long in the tooth.” Both are in their seventh year of recovery and expansion. What should investors be focusing on to alert them that the end may be nearing?

    If I had to pick one key piece of economic data, it would be the trend in labor costs, specifically the year-over-year change in average hourly earnings for all employees. This number is released monthly by the Bureau of Labor Statistics in a report titled, “The Employment Situation.” In the most recent report for October 2015, published on November 6, labor costs were growing at 2.5% annually.

    Why is the trend in labor costs worth watching? Because labor costs are a good proxy for emerging inflation trends in the economy. And, most economic and stock market cycles end with the Federal Reserve (Fed) hiking interest rates and tightening monetary policy in an effort to curb inflation.

    The Fed has stated that its goal for trend inflation is around 2.0%. Labor costs are a big component of inflation. History shows that once labor costs rise toward 3.5% or 4.0%, the Fed is aggressively tightening monetary policy. Eventually, tight money kills a bull market in stocks and then the economic expansion, too.

    Right now, labor cost inflation is well below 3.5%, but it is rising. In October 2014, it was 2.0%; now it’s 2.5%. Given the recent strength in employment growth, the decline in the unemployment rate to 5.0% and more employers reporting difficulty in hiring qualified workers, labor costs appear to be in a sustainable uptrend.

    Bottom line: How quickly labor costs continue to rise will likely determine just how quickly the Fed hikes interest rates and, ultimately, the duration of the aging bull market in stocks.

    Bill Hackney, CFA

    Senior Partner

    Atlanta Capital Management

    How quickly labor costs continue to rise will likely determine just how quickly the Fed hikes interest rates and, ultimately, the duration of the aging bull market in stocks.

    Latest advisory blog entry

    November 13, 2015 | 10:00 AM

    The excitement is gone

    After a very volatile market environment in late August and early September, it appears that much of the excitement is gone. Investors now need to consider how to be positioned in the equity markets for the next move. At Eaton Vance’s 2015 Investment Perspectives Luncheon in New York, portfolio manager Eddie Perkin shared his perspective on positioning in the U.S. equity market.

    Funds Managed by Edward J. Perkin
    EIFVX, EILVX, EITVX

    Edward J. Perkin, CFA

    Chief Equity Investment Officer

    Eaton Vance

    Latest advisory blog entry

    November 12, 2015 | 2:30 PM

    Is China pessimism overdone?

    There’s little doubt that China’s growth is slowing. But is the pessimism on China’s economy warranted or overdone? At Eaton Vance’s 2015 Investment Perspectives Luncheon in New York, portfolio manager Eric Stein offered his view on the world’s second-largest economy.

    Funds Managed by Eric Stein
    EIGMX, EGRIX, ECIIX, EICOX, ESIIX

    Eric Stein, CFA

    Co-Director of Global Income

    Eaton Vance

    Latest advisory blog entry

    November 11, 2015 | 1:45 PM

    This has never happened before

    What was the cause of recent market volatility? At Eaton Vance’s 2015 Investment Perspectives Luncheon in New York, portfolio manager Richard Bernstein said the reason is simple: The Fed is about to do something that has never happened before.

    Funds Managed by Richard Bernstein
    ERBIX, EIRAX, ERMIX

    Richard Bernstein

    CEO and CIO

    Richard Bernstein Advisors, LLC






    At Eaton Vance, we value independent thinking.

    In our experience, clients benefit from a range of distinctive, strongly argued perspectives.

    That’s why we encourage our independent investment teams and strategist to share their views on pressing issues - even when they run counter to conventional wisdom or the opinions of other investment managers.

    Timely Thinking. Timeless Values.

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      Certain products and services mentioned on this website may not be eligible for sale in some states or countries and they may not be suitable for all types of investors. This website does not constitute an offer or solicitation and is not directed at you if Eaton Vance Management (International) ltd (EVMI) is prohibited by any law of any jurisdiction from making the information on this website available to you and is not intended for any use that would be contrary to local law or regulation. No products and services mentioned on this website must be promoted in any jurisdiction where this would not be permitted.

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      The value of investment funds and the income therefrom may go down as well as up and you may not get back the original amount invested. Your capital could be at risk. You are not certain to make money from your investments and you may lose money. Exchange rates may cause the value of overseas investments and the income therefrom to rise and fall.

      Information in this section may contain statements that are not historical facts, referred to as forward-looking statements. A Fund’s 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, the volume of sales and purchases of Fund shares, the continuation of advisory, administrative and service contracts, and other risks.

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