Investment Opportunities

How Eaton Vance Shareholders Are Up 84%

Asset manager Eaton Vance (NYSE: EV) has some very happy shareholders these days.

Let me show you why…

Eaton Vance Corp Price Change


Eaton Vance shares are up 84% in the past six months, with almost all of that increase coming in just one day.

The catalyst that created this huge share price jump was the announcement that Morgan Stanley (NYSE: MS) was acquiring Eaton Vance for nearly $60 per share.

That was a huge premium to the $36 share price that Eaton Vance was trading at the day prior.

After seeing their shares go nowhere for months, Eaton Vance shareholders were rewarded with several years’ worth of stock market returns in the blink of an eye.

Congratulations to them!

Let’s go get some of that for ourselves…

Eaton Vance Isn’t the Only Dirt-Cheap Asset Manager

This nice win for Eaton Vance shareholders is value investing at its finest. It involves a simple two-step process:

Step 1: Buy a stock that you think is trading for far less than the underlying business is actually worth.

Step 2: Wait for a catalyst to arrive that drives the stock up to an appropriate (and much higher) valuation.

Often, finding undervalued companies is the easier part of the process.

The waiting, on the other hand, can be very difficult.

That is because there is no guaranteed timeline for when the value-realizing catalyst will arrive, and sometimes a lot of patience is required.

I do not believe that Morgan Stanley’s purchase of Eaton Vance is going to be the only value-creating takeover in the asset management sector.

More are coming because there are several publicly traded asset managers trading for very low valuations.

These dirt-cheap asset managers are ripe for being taken over by larger competitors.

Consolidation in the asset management industry makes an enormous amount of sense right now. Companies are under pressure to lower fees because of pressure from passively managed index funds.

Further, bigger asset managers are able to cut expenses through economies of scale and their larger sales networks help bring in more assets to manage.

I am not the only one who thinks asset managers are cheap and that more consolidation is coming.

At the start of October, the activist hedge fund Trian Partners announced that it had taken big share positions in asset managers Janus Henderson (NYSE: JHG) and Invesco (NYSE: IVZ).

Trian’s stake in these companies should be music to these companies’ shareholders’ ears…

In 2019, Trian took a similar large position in the shares of asset manager Legg Mason. Less than a year later, Legg Mason was acquired by Franklin Resources (NYSE: BEN) at a 55% premium to Trian’s initial entry price.

Trian’s influence was key to driving that takeover.

Successful activist hedge fund managers like Trian use this strategy frequently.

They purchase shares of companies that they believe are undervalued. Then, they push those companies to be sold to competitors at a valuation that is much more appropriate – and higher than what the hedge fund paid.

We don’t have to speculate on whether Trian is hoping Janus and Invesco will sell to a competitor at a premium. Trian told the market that its exact intention was to push for value-creating takeovers.

We can see that in the 13D filings that Trian’s management is required to make with the Securities and Exchange Commission when it takes a large position in any stock…

Trian intends to engage in discussions with the board and/or management of the company regarding many topics including encouraging them to explore certain strategic combinations with one or more companies in the asset management industry.

Trian is essentially using the two-step value investing process that I laid out earlier. The only difference is that an activist hedge fund like Trian isn’t willing to patiently wait for a catalyst to arrive.

Instead, it creates the catalyst itself by pushing the company to sell itself at a higher price.

Shareholders of Invesco and Janus could soon be rewarded.


Jody Chudley is a Contributing Analyst to Wealthy Retirement. He is a qualified accountant with two decades of experience in the international banking and hedge fund industries as a financial analyst.
His background in finance has made him an expert in deciphering financial statements and uncovering deep value and income opportunities. He has written for various websites and financial magazines with a focus on the resource sector and contrarian investment opportunities.

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