BOE - BOE: Ex-U.S. Globally Diversified High-Yielding Portfolio Available At Discount

Summary

• Blackrock Enhanced Global Dividend Trust has a significantly large asset base, offers a monthly payout, and consistently generates a strong yield within a range of 6 to 9 percent.
• BOE has a diversified portfolio and is heavily invested in information & communication technology, healthcare, financials and industrial sectors.
• BOE's top investments, primarily in the technology sector, have done well in the long run, although the same wasn’t replicated in the short run.
• In addition to a relatively strong annual average total return over the long run, BOE carries a low level of risk and is trading at a huge discount.

~ by Snehasish Chaudhuri, MBA (Finance).

BlackRock Enhanced Global Dividend Trust (BOE) is a closed-end equity mutual fund ("CEF") that invests in public equity markets across the globe. It primarily focuses on investments outside the U.S. With an asset under management of $715 million, the fund is also relatively diversified. Stocks from healthcare, information technology & communication ((ICT)), financials, and industrial sectors account for almost 72.6 percent of BOE's entire portfolio. BOE also sells options in order to earn some premium income. However, it doesn't employ any leverage, and thus keeps its risk within a limit. Leveraged funds are generally negatively impacted by rising interest rates as the interest expenses go up. The fund is currently priced around $10 and at a significant discount of 10.82 percent. The fund's discount has also gone up significantly.

BOE has Diversified Portfolio that Invests All Over the Globe Outside the U.S.

BlackRock Enhanced Global Dividend Trust was launched by BlackRock, Inc., and is co-managed by BlackRock Advisors, LLC and BlackRock International Limited. It benchmarks its performance against the S&P Global Broad Market Index. BOE aims to provide current income with a secondary investment objective of long-term capital appreciation. Under normal circumstances, the fund invests at least 80 percent of its net assets in dividend-paying equity securities and at least 40 percent of its assets outside of the U.S. Under the current circumstances, global stocks seem to be more attractive due to their favorable valuations, and BOE has invested 52 percent in foreign equities.

BlackRock Enhanced Global Dividend Trust was formed in May, 2005 and has been paying monthly dividends since November, 2014. BOE proposes to invest in securities of companies of any market capitalization, but in reality, primarily invests in securities of large-cap companies. The Fund generally intends to write covered put and call options with respect to approximately 30 percent to 45 percent of its total assets. The fund recorded a yield of 7.4 percent during 2022. The fund also has a very high turnover of 65 percent, meaning its portfolios are restructured very often, and the fund is actively managed.

Composition of BlackRock Enhanced Global Dividend Trust's Equity Portfolio

Nearly 97 percent of the portfolio is invested in large-cap companies, and almost 47 percent is in the U.S. market. Major exposure in other markets included the U.K. and France. Both these countries are less impacted by the Russian invasion of Ukraine, as compared to the Eastern European countries. BlackRock Enhanced Global Dividend Trust doesn't have any significant exposure in Eastern European countries. The fund is heavily invested in information technology, healthcare, financials and industrial sectors. BOE's portfolio suffers lower losses due to broader sector diversification and its options writing strategy. Gains made through options writing strategy and the net gains generated by BOE's portfolio, although weren't enough to entirely cover the distribution, significantly reduces the shortfall in steady pay-out.

BOE's Top Investments in Technology Sector Grew Over the Past 10 Years

Familiar technology & communication sector stocks such as Microsoft Corporation ( MSFT) , Intuit Inc. ( INTU ), Taiwan Semiconductor Manufacturing Company Limited ( TSM ), Accenture plc ( ACN ), TE Connectivity Ltd. ( TEL ), and RELX PLC ( RLXXF ) are among the top investments of the BlackRock Enhanced Global Dividend Trust. BOE also invested 2.52 percent of its assets in Intercontinental Exchange, Inc. ( ICE ), which earns substantial revenues from data Services, and mortgage technology. Together all these stocks account for almost one-sixth of BOE's portfolio. During the past six months, all these stocks generated negative price growth. However, over the past ten years, these stocks recorded price growth between 178 percent to 797 percent.

BOE Generated Consistent Yield & Strong Annual Average Total Returns

Stocks from other three sectors - healthcare, industrial and financial - also form an integral part of BOE's portfolio. Sanofi SA ( SNY ), AstraZeneca PLC ( AZN ), AbbVie Inc. ( ABBV ), Novo Nordisk A/S ( NVO ), Medtronic plc ( MDT ), UnitedHealth Group Incorporated ( UNH ), Prudential Financial, Inc. ( PRU ), Citizens Financial Group, Inc. ( CFG ), Ferguson plc ( FERG ), Otis Worldwide Corporation ( OTIS ), Zurich Insurance Group AG ( ZURVY ) are the stocks on which BlackRock Enhanced Global Dividend Trust invested more than 2 percent of its assets under management. Most of these stocks however have performed well enough during the past six months. Barring MDT and UNH, all other stocks had a positive price growth in between 6 to 38 percent.

Over the past 10 years, Barring SNY, all other stocks had a price growth ranging between 70 to 790 percent. Altogether, all these 18 stocks account for 46 percent of BOE's entire portfolio. BOE's top investments have done well over the long run, although the same wasn't replicated over the short run. No wonder that BlackRock Enhanced Global Dividend Trust had been able to generate a steady yield and relatively strong total return over the long run. It mostly generated an annual average yield between 6 to 9 percent during the past 10 years. During the year 2017 and 2021, it generated an annual average total return of only 12.4 percent on the back of such a steady yield.

Investment Thesis

I find the BlackRock Enhanced Global Dividend Trust to be lucrative according to my "7 Factor Model for Evaluating Global Funds." By applying the "7 Factor Model for Evaluating a Fund," I try to find out whether the stock qualifies with respect to some minimum requirements such as current market price of $5, AUM of $200 million, yield of 4 percent, and diversification of its investments among eight major sectors - technology, financial, healthcare, industrial, consumer products, energy & materials, real estate and utilities. In addition to these, three other factors such as, risk characteristics of its portfolio, degree of discount from its current NAV, and sustainability of current yield; enables me to understand the attractiveness the fund provides to its investors.

BlackRock Enhanced Global Dividend Trust has a significantly large asset base, qualifies for the minimum requirements with respect to stock price, and generates a strong yield on a consistent basis. Moreover, the fund pays monthly distribution, which is of prime importance to income-seeking investors. Its portfolio is deeply diversified. Nearly 97 percent of the portfolio is invested in large-cap companies, and almost 47 percent is in the U.S. market. The fund is heavily invested in information technology, healthcare, financials and industrial sectors. All these sectors are expected to generate above-average growth rates.

Again, Blackrock Enhanced Global Dividend Trust carries a low level of risk and is trading at a huge discount. In my opinion, BOE is most likely to sustain its current level of yield, which should provide enough impetus for its investors.

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