MCN - ETJ: More Risks Than You Think But Still A Decent Fund

2024-07-02 10:37:11 ET

Summary

• Eaton Vance Risk-Managed Diversified Equity Income Fund offers high current income with equity exposure for income-minded investors.
• Inflation might be higher than official numbers suggest, making equities a good hedge; the fund's 8.90% yield compares well with peers.
• The fund's unique options strategy protects against market crashes, but a concentrated portfolio and declining distributions are potential concerns.
• The Fund is at risk of large losses if the S&P 500 Index appreciates rapidly, but this is a very rare occurrence.
• The fund is fully covering its newly-raised distribution and is trading at a discount to net asset value.

The Eaton Vance Risk-Managed Diversified Equity Income Fund ( ETJ ) is a closed-end fund that income-minded investors can purchase to obtain a very high level of current income without sacrificing their equity exposure. I have explained in a few recent articles that it is important for income-focused investors to maintain a healthy allocation to equity securities in a portfolio as a hedge against inflation. For example, in this report , I showed that the true rate of inflation might be higher than the official numbers state and fixed-income securities might still have yields that are too low to offset the loss of purchasing power. We saw further evidence that inflation might be higher than the official numbers suggest in an article published to Zero Hedge this morning. This article starts off with the following observation:

The most startling moment in the CNN debate last week between President Joe Biden and former President Donald Trump was not from the candidates. It was from moderator Jake Tapper, who said with a straight face as if it were just the science that grocery prices were up by 20 percent since President Biden was elected.

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