Eaton Vance’s Yana Barton Says Safety Isn’t Safe in Stock Market

  • Flight to safer equities ignores potential high-fliers
  • Growth stocks lagging value stocks by most since 2008

Equity pessimists have become too cautious for their own good.

That’s the analysis of Yana Barton, a portfolio manager at Eaton Vance Corp., who’s says the stock market has seen a herd mentality drive investors to companies with high payouts that are perceived to be less risky, ignoring stocks that offer growth. The dour outlook provides an opportunity for people willing to heed signs that continued economic growth and central-bank support can lift some equities even higher, she said.

“Few people are focusing on what could go right,” said Barton, who helps oversee $311 billion in Boston, in an interview at Bloomberg’s New York headquarters on Thursday. “We keep waiting for the market to pull back for any reason. Nobody wants to talk about growth, and particularly U.S. growth. They want to talk about the wrong stuff.”

Even as the S&P 500 Index has rallied almost 7 percent this year, snapping a 13-month drought without a record, there’s nary a celebration, she said. Instead, investors are obsessing about the next catalyst for a possible decline, with he flight to safety possibly setting them up for a surprise.

Some of the pessimism is apparent in utilities stocks -- a sleepy defensive industry -- which soared to record valuations at the same time that growth companies fell out of favor. The Russell 1000 Growth Index is lagging behind the Russell 1000 Value Index by 2.3 percentage points this year, the most since 2006.

As a result, “perceived safety is no longer safe,” while growth is trading at a discount, she said.

At the same time, many investors have wholly dismissed the possibility that improving economic data may spur the Federal Reserve to raise interest rates this year, Barton said. While a hike would likely weigh on the market as a whole, phone and utility stocks valued for their dividends would especially lose luster. The two groups have climbed the most in the S&P 500 this year.

Even as the market has calmed recently, with the CBOE Volatility Index falling to a two-year low last week, investors still are bracing for the next shoe to drop. A recent survey conducted by Eaton Vance found that heightened anxiety persists among financial advisers. Volatility scored highest for top-of-mind concerns, the most since the study’s 2014 inception, followed by income and growth.

“People are so focused on risk this year -- the risk is you’re focused on the wrong risk,” Barton said.

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