From the January 2007 issue of Research Magazine • Subscribe!

Eaton Vance, Hawkes Have Strong Fiscal '06

Eaton Vance Chairman and CEO James Hawkes, 65, could have quite a stellar pre-retirement fiscal year in 2007, judging from the Boston-based fund company's recent performance.

"Fiscal 2006 [ended Oct. 31, 2006] was another banner year for Eaton Vance," says Hawkes, who will turn over the reigns to Tom Faust, 48, on Oct. 31, 2007. Total assets under management grew nearly 20 percent to close at $130 billion for the period. Gross sales and inflows were $27.1 billion vs. $25 billion in fiscal 2005, and open-end mutual fund net flows more than doubled.

In late November, the corporation staged an IPO for the common shares of the closed-end Eaton Vance Tax-Managed Diversified Equity Income Fund (ETY), producing gross proceeds of $2.6 billion. The fund's IPO is the largest closed-end fund initial public offering ever, the company says.

And it's not just the company's closed-end funds that are catching investors' attention. "We have a broadly diversified product line across equity categories and within them," Hawkes explains. In the 10 weeks ended Oct. 27, Eaton Vance's top selling funds were its national municipal fund (with annualized sales of $3 billion), large-cap value fund ($2.5 billion), floating rate fund ($1.8 billion), long-term state municipal fund ($1 billion) and tax managed dividend income fund ($0.9 billion).

"They've reached a certain critical mass," shares Eric Jacobson, a research analyst with Morningstar. "They've gotten better at executing their business."

Since 1996, the company's total assets under management have grown at a compound annual rate of 22 percent. And, with nearly $80 billion in long-term fund AUM, Eaton Vance has moved up to being the 15th largest manager of long-term funds as of October 2006 from being the 25th largest in 2003.

"We also have good performance in a lot of different funds," the CEO stresses. For instance, the Eaton Vance Greater India Fund (ETGIX) has five-star ratings from Morningstar in the past three, five and 10 years as of Sept. 30, 2006. It's also in the top 1 percent in terms of its performance out of a pool of 85 funds and has five-year trailing returns of 37 percent. The fund's advisor is Lord George Investment Management of Hong Kong.

The Eaton Vance AMT-Free Municipal Bond I (ETMBX) also has a five-star Morningstar rating overall. It's five-year trailing returns are close to 7 percent and its estimated expenses are 0.87 percent, according to Morningstar. It rose 8.6 percent in the first 11 months of 2006.

The company's funds are attracting more interest from financial advisors. In late May 2006, Merrill Lynch added the Eaton Vance Large-Cap Value Equity Strategy Fund to its financial consultants program. This program also includes the Parametric Portfolio Associates' Tax Managed Core Portfolio and Eaton Vance/Parametric Tax Managed Consultants Diversified Portfolio; Eaton Vance acquired Seattle-based Parametric Portfolio Associates in 2003.

According to Eaton Vance, these offerings are part of Merrill's separately managed account platform. The fund company also sells about 70 funds across other Merrill platforms, including 12 equity funds.

The retail managed accounts area is an expanding focus of Eaton Vance. "We are optimistic about this area and expect to see major growth going forward," says Hawkes.

Eaton Vance's retail managed account assets stand at nearly $10 billion vs. less than $1 billion in fiscal '02. Yearly sales in this market top $3.5 billion vs. $700,000 in '02.

An important component of this work has been expanding the company's sales team. The number of managed-account distributors, for instance, has grown to 18 from 15 in 2003 and 0 in 2000. The internal and external wholesaling teams now include 52 individuals each -- putting the total distribution group at 154 people, up from 136 in 2003 and 107 in 2000.

Overall, about one-third of the company's sales come through the wirehouse broker-dealers vs. two-thirds or more some 15 years ago. Roughly 25 percent of sales are coming through independent broker-dealers and the banking- and insurance-related channels. "We got a sales force together 10 years ago to focus on independent financial institutions, and that's helped us build success in recent years," he adds.

The growing interest in Eaton Vance products in the independent channels has to do with the client base these advisors serve. "We're talking about older clients and investors who are frequently interested in our municipal and tax-managed funds," explains Hawkes. "Our products are quite complementary to this advisor model."

Eaton Vance plans to stay ahead of the growth game and continue to make a strong push for some its most popular products, such as closed-end funds and high-yielding equity products, according to Hawkes. But it won't shy away from addressing its weak areas, which -- until recently -- were international and small-cap, he says.

The company tapped a new portfolio manager for its Eaton Vance Small-Cap Growth Fund (ETEGX), for instance, about a year ago. The fund was in the top 13 percent of its category and beating this category by about 6 percent for the year as of November. "Nancy Took got our fund from the bottom quintile to the top in the short term," shares Hawkes, "though it will take a while to improve the five-year track and get to four- or five-star ratings."

In terms of its international funds, Eaton Vance is working with an unaffiliated sub-advisor, Eagle Global Advisors of Houston. "They are doing a fabulous job," Hawkes says.

Hawkes has 10 months to go before retirement and admits he hasn't entirely prepared for this next stage. "I'll figure it out when I get there," he shares. In the short term, he plans to concentrate on further expansion of Eaton Vance's market share in both open- and closed-end funds, as well as its managed-accounts and institutional sales. "We really will stay based in Boston and focused on our core asset-management activities going forward," he concludes.

Reprints Discuss this story
This is where the comments go.