Eaton Vance fixed-income capabilities

Designed with client success in mind.

For four decades, over the course of numerous economic and interest-rate cycles, Eaton Vance has been developing fixed-income strategies with an unwavering commitment to the success of our clients.

Eaton Vance strategies are managed by dedicated sector teams devoted to seeking value from the bottom up within a research-driven culture — the product of a rich history of independent thought and expertise. This experience allows us to calibrate risk and reward as we strive to meet the specific objectives of institutional portfolios.



With professional depth, breadth and skill that rank among the foremost in the industry, each Eaton Vance team addresses the specific objectives of institutional portfolios across global sectors, including multisector, floating rate, investment grade, high yield, global income, emerging market, municipal and cash. The edge we offer clients includes:


Risk management — Management of risk is integral to all Eaton Vance strategies at the security and portfolio levels, and is implemented through both quantitative and qualitative methods.


Bottom-up focus — Insight from our proprietary research guides all of our investment decisions, allowing us to uncover opportunities that the market may have overlooked or misunderstood.


Investment expertise — Eaton Vance’s fixed-income teams comprise 166 investment professionals, led by portfolio managers with an average of 22 years of industry experience and research analysts averaging 13 years.1



Scale and agility — With $123.6 billion in income assets,1 Eaton Vance is big enough to command attention in the bond market, yet agile enough to move quickly in volatile markets.


Professional continuity — Eaton Vance incentivizes talented investment professionals to build careers here, with a significant portion of compensation consisting of company equity. Portfolio managers have an average tenure of 12 years at Eaton Vance, and research analysts 7 years.1


Scroll down to see how we can help position your fixed-income portfolio to meet the objectives you have in mind.







1 As of December 31, 2018.

  • The way we think about risk:
    Research-driven, value-focused

    The generational decline in rates was a tailwind for bond investors that was without precedent in modern financial history. With that tailwind gone, exposure to long-duration bond risk is no longer likely to drive target returns — and bond managers will have to think differently about risk.

    Today, most fixed-income sectors are expensive, and investors are anticipating a cycle of rising interest rates. But the market remains largely an inefficient place, where bonds are frequently mispriced and trades are often driven by fear or greed. That’s why the way Eaton Vance thinks about risk — driven by bottom-up research to capture value for clients — remains the best way we know to help institutions pursue
    fixed-income targets.

  • The first four decades of the U.S. Agg may be the toughest bond act to follow — ever

    In 1976, Gerald Ford was president, inflation was running at 7% a year, real U.S. GDP growth was 6.2%, and the yield on the 10-year U.S. Treasury note was 7.8%.2

    It was also the year that Lehman Brothers introduced its U.S. Aggregate Index (the U.S. Agg) as a broad measure of government and investment-grade corporate debt. Just under six years later, the 10-year U.S. Treasury note peaked at over 15.8%, and by 2012 it had declined to under 1.4%. As a result, an institution that had invested in a core portfolio mirroring the U.S. Agg (now owned by Barclays) since its inception in 1976 would have achieved a 7.9% annualized total return over the subsequent 39 years.


    2 Data for this and subsequent two paragraphs are from
       Bloomberg, LLC as of December 31, 2014.

    To gain perspective on just how extraordinary the recent era has been, consider the 50 years prior to 1976 when U.S. corporate bonds returned an annual average of 3.8%, and government bonds 3.1%, according to Ibbotson Associates. At 7.9%, the average annual return of the U.S. Agg over its first four decades was more than double both government and corporate bond market returns over the prior five decades. The same comparison is even more dramatic on an inflation-adjusted basis.

    After this incredible run, the U.S. Agg yields about 2.3%, or 1.6% after inflation, as of December 31, 2014. Clearly, this rate is insufficient to meet institutional targets. The key question: What fixed-income strategies can help restore or exceed the target return that the U.S. Agg is no longer likely to provide?

  • Bond returns over the past four decades were more than double the previous 50 years’ returns

    • U.S. Treasurys
    • U.S. Corporate bonds
    • U.S. Aggregate
    Nominal average annual returns
    1926–1975
    3.1%
    3.8%
    1976–2014
    9.0%
    9.1%
    7.9%
    Inflation-adjusted average annual returns
    1926–1975
    0.8%
    1.5%
    1976–2014
    5.0%
    5.1%
    3.9%

    Source: Morningstar, Eaton Vance as of December 31, 2014. The U.S. Aggregate Index represents the Barclays U.S. Aggregate Index, an unmanaged index of domestic investment-grade bonds, including corporate, government and mortgage-backed securities; prior to 2009, it was known as the Lehman U.S. Aggregate Index. Returns for long-term U.S. Treasurys and corporate bonds are based on proprietary Morningstar indexes designed to reflect performance of the U.S. Treasury and investment-grade bond universes, respectively. Unless otherwise stated, index returns do not reflect the effect of any applicable sales charges, commissions, expenses, taxes or leverage, as applicable. Past performance is no guarantee of future results. It is not possible to invest directly in an index.

  • Risk drives return — if it is the right risk

    Earning the desired return from a fixed-income portfolio means assuming exposure to the right risks. The dilemma for investors today is that interest rates and credit — the two traditional global fixed-income risk factors that historically drove returns — are out of steam.

    Consider:

    • With real interest rates currently hovering modestly above zero, exposure to interest-rate risk offers little expected return. At the very least, the interest-rate tailwind for bonds is gone, with the strong potential of becoming a headwind when rates rise.
    • The credit-risk premium — the spread that instruments such as high yield bonds provide over U.S. Treasurys — historically has acted as a buffer against rising rates in a strengthening economy.
    • Unfortunately, in this cycle that traditional buffer is largely gone — there already has been significant spread compression. No sector looks particularly “cheap” relative to its recent history.

    The exhibit on the next slide shows the situation clearly: Interest rates are near a major secular trough, while the highly cyclical credit spread (Moody’s Baa over U.S. Treasurys) is on the downside of a cycle that peaked during the financial crisis at the end of 2008. Many fixed-income investors in recent years have benefited to some extent from taking on interest-rate and credit risk. The graph illustrates very dramatically, however, why we believe that it is now incumbent upon fixed-income investors to seek return potential from exposure to other sources of fixed-income risk.

  • Interest rates are low and credit spreads tight, offering little potential return

    • Credit spread over
      U.S. Treasurys (left scale)
    • U.S. Treasurys (right scale)
    Interest rates and credit
    spreads are down signifi-
    cantly from their peaks.

    Source: Robert J. Shiller, Bloomberg LLC, Eaton Vance as of December 31, 2014. Yields for long-term U.S. Treasurys are from “Market Volatility, 1989, revised and updated,” by Robert J. Shiller. The credit spread refers to Moody’s Baa spread over U.S. Treasurys — the yield on U.S. Treasurys subtracted from the yield on an equivalent corporate bond rated Baa by Moody’s Investors Service. Baa represents average corporate credit quality, one notch above investment grade, and is based on Moody’s analysis at the time of rating.

  • Driving returns with the right risk

    In seeking to build well-rounded fixed-income portfolios going forward, Eaton Vance believes that investors can benefit from strategies based on nonsystematic risk — exposure to the unique factors of individual issuers.

    Opportunities generated by nonsystematic, or idiosyncratic, risk arise from the relatively inefficient — and sometimes irrational — nature of the bond market. Fear, greed and related investor herd dynamics never go out of fashion and often play a role in whipsawing bond prices. Mispricing of an individual issue can stem from events as global as speculation on the price of oil to as narrow as a company’s quarterly earnings missing the “whisper number” on the Street.

    Thus, while global macroeconomic factors like interest rates and credit have always been cyclical, we believe that idiosyncratic risk holds the potential to be a more consistent and enduring source of return. That’s especially valuable in today’s environment, given how unpromising interest-rate and credit risk appear. Nonsystematic risk may also improve portfolio diversification in core portfolios, which are heavily exposed to interest-rate and credit risk. These systematic risk factors are by definition uncorrelated with idiosyncratic risk.

  • A rigorous approach to evaluating risk — the Eaton Vance way

    There are no shortcuts to capturing the potential value from thousands of bond issues across the globe. This approach depends on mastering the idiosyncrasies of a wide range of issuers, from the fine print of floating-rate loan covenants to the local economics and politics underpinning emerging-market debt. It is an approach that can succeed only with continual, diligent focus, and an organization that is prepared to commit the necessary resources over the long haul.

    Our philosophy comprises three main beliefs:

    • Portfolio management equals risk management. Only by understanding the nature and dimension of risks assumed can the potential for return be properly evaluated.
    • We are bottom-up managers who believe that fundamental value drives returns over the long term, not technicals or momentum.
    • A research-driven culture committed to building investment depth, breadth and skill offers the best foundation for pursuing client objectives.
  • Eaton Vance’s bottom-up focus is key to uncovering fixed-income value

    TOP-DOWN

    Primarily driven by analysis of five global, systematic risks:

    • Interest rates
    • Credit
    • Prepayments
    • Currency
    • Liquidity
    CLIENT PORTFOLIO

    All fixed-income research employs elements of top-down and bottom-up analysis. What sets Eaton Vance apart is the depth and breadth of our proprietary research — bottom-up insight that is key to uncovering value overlooked by the market.

    BOTTOM-UP

    Primarily driven by analysis of issuer-specific risks, such as:

    • Free cash flow
    • Balance sheet strength
    • Management capabilities
    • Competitive position

    Source: Eaton Vance as of December 31, 2014.