MSFT - Equity CEFs: ETW Is The Most Compelling Fund To Own Now

2023-09-22 15:00:23 ET

Summary

• Heavy selling in Eaton Vance equity CEFs by leveraged banks and financial institutions is causing extreme valuation drops.
• Opportunities may arise in larger CEF fund families like Nuveen and Eaton Vance due to indiscriminate selling by institutions without regard to price or NAV performance.
• The Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund offers the most compelling opportunity due to a defensive option write strategy and a tax-advantaged 9.1% current yield.
• This is in addition to a fund whose NAV is largely keeping up with the S&P 500 and should actually outperform the S&P 500 in a more defensive market environment.

There's been heavy selling in the Eaton Vance equity closed-end funds ("CEFs") for a while now, as I believe institutions, especially leveraged banks and financial institutions, continue to sell assets to try and shore up their balance sheets.

Though CEFs, both bond and equity, would not necessarily be heavily owned by banks and financial institutions, even relatively small positions could be in the tens of thousands of shares. Morgan Stanley ( MS ) , for example, is typically the largest institutional shareholder of most CEFs, but there are hundreds of institutions who also own CEFs.

So if leveraged institutions like banks are the ones needing to sell and are causing all of these valuation drops in CEFs right now, then what does that tell you about their investment prowess in the first place?

I believe this is creating some opportunities in some of the larger CEF fund families, like Nuveen and Eaton Vance , which typically would have more institutional shareholders and thus may be bearing the bulk of the indiscriminate selling.

And the one fund that I believe offers the best portfolio and income strategy in a difficult market environment along with the best valuation is the Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund ( ETW ) , $7.69 real time market price, -0.25% .

Understand, I'm not saying ETW is going to give you the greatest upside potential, but in terms of portfolio diversification, with a very defensive option write strategy and a tax-advantaged 9.1% current yield paid monthly, I like to think of ETW as more of a very high-yielding bond fund w/out the high-yield risk.

ETW owns only stocks and uses no leverage so you don't have to worry about leverage expenses going up with interest rates. Yes, ETW owns most of the mega-cap technology names like Apple ( AAPL ) , Microsoft ( MSFT ) and Amazon ( AMZN ) among its top 10 holdings, but ETW also owns large cap global stocks in Europe and the Far East, i.e., Japan.

Here is ETW's Fact Sheet for a snapshot of the fund as of June 30th:

But what is most important to know about ETW is that its NAV has kept up with the S&P 500 ( SPY ) , $431.39 current market price , even with a global stock portfolio and a very defensive option strategy that sells mostly S&P 500 and NASDAQ-100 Call options on virtually all of ETW's portfolio value.

THAT is very diversified and very defensive, which I believe is critical in today's market. Here is how ETW's NAV has performed compared to the SPY:

Note: Total return means all dividends and distributions for ETW and SPY are included.

In fact, if the markets continue to be on the defensive, that just fits into ETW's strategy even more, and I would expect ETW's NAV to start outperforming SPY if that happens.

But here is why ETW is so compelling. Take a look at ETW's total return MKT price over the last year compared to SPY:

Does it make sense that ETW's MKT price should underperform its NAV by this much? And this is how it looks on a Premium/Discount chart over the last year for ETW:

So why is this happening? Well, first you should know that this is happening to a lot of equity CEFs right now. I just happen to think that ETW presents the most compelling buy with an MKT price at essentially a 52-week low, trading at an -11% discount and with a windfall 9.1% market yield.

Again, I believe this is due to institutional sellers like leveraged banks and financial institutions who continue to de-leverage and keep offering up shares of ETW and other CEFs without regard to how a fund is actually doing.

This certainly has nothing to do with ETW's NAV performance, so take this as an opportunity to buy the most compelling equity CEF I see right now.

For further details see: