Know what you own and don’t panic: Eaton Vance
September 15 marked a decade since the collapse of Lehman Brothers, and Eaton Vance’s chief income investment officer, Payson F. Swaffield, said investors could learn a thing or two from the crisis about following timeless investing rules.
Investors who held on to investments bought pre-2008 crisis – even if bought at the peak before the Lehman collapse – could have had positive annualised returns over the next 10 years, according to Swaffield.
The lessons learned, he said, could aid investors considering the recent emerging markets debt and currency sell-offs, using the bounce-back of subprime mortgages as an example.
While the mortgages were widely publicised as one of the catalysts for the crisis, Swaffield said 10 years later, the AAA-rated subprime RMBS has rebounded to 95 cents on the dollar, while BBB-rated RMBS remain completely wiped out.
The difference in AAA and BBB-rated subprime RMBS, said Swaffield, was in how the RMBS deals were structured.
“The most important lesson here is that there is no substitute for knowing what you own,” he said. “Both AAA and BBB RMBS suffered major declines as the crisis panic took hold, but the ultimate payoffs were dramatically different. AAA investors who took the time to understand how subordination worked – and held on – were paid for their efforts.”
Swaffield said this illustrates the value of “staying the course” when you understand your investments.
AUTHOR
Anastasia Santoreneos
Recommended for you
The “experiment” away from vertical integration has been a mistake, according to Clime’s Michael Baragwanath, and Clime is positioning to benefit via advice and fund manager acquisitions.
JP Morgan Asset Management has identified Australia as an “emerging growth market” as it seeks to double its assets under management in the Asia-Pacific region in the next five years.
Australian Ethical funds under management were $14.3 billion at the end of September, with its investment division seeing inflows return after outflows in the previous quarter.
Record flows into iShares ETFs helped BlackRock’s assets under management reach US$13.5 trillion in the third quarter, but it reported outflows from the APAC region.
