EOS - EOS: No Longer An Attractive Entry Point (Rating Downgrade)

2024-07-29 11:31:30 ET

Summary

• EOS was previously considered attractive due to its discount to NAV and strong performance. We had previously recommended buying the fund.
• The fund's discount to NAV has narrowed significantly, and technology valuations have become stretched. These factors make EOS less attractive compared to earlier in the year.
• A potential "great rotation" from tech to small-cap stocks could further impact EOS's performance. As investors shift focus, the fund's overweight position in technology may become a disadvantage.
• The thesis is based on a "soft landing" scenario. A hard landing or recession could significantly impact the fund's performance due to valuation declines and potential liquidity issues.

Thesis

We wrote about the Eaton Vance Enhanced Equity Income Fund II ( EOS ) in the beginning of the year, when we argued the closed end fund was an attractive option for investors seeking technology exposure, especially through the lens of its discount to NAV and robust historic performance. The CEF has delivered since our last article:

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