MCN - ETY: Incredibly Strong Performance For H1 2024 But Portfolio Diversification Is Lacking

2024-07-04 02:00:07 ET

Summary

• Eaton Vance Tax-Managed Diversified Equity Income Fund offers high current income through equity investments, potentially protecting against inflation.
• The Fund boasts an 8.43% yield, slightly above peers, making it attractive to income-seeking investors.
• The Fund's distribution is sustainable, covering expenses with substantial capital gains, and currently trades at a 3.68% discount to net asset value.
• The Fund claims not to invest more than 25% of its assets into any single sector, but it is currently violating this mandate.
• The Fund had remarkable performance in the first half of the 2024 fiscal year, but its portfolio has become very concentrated. It is not as diversified as it claims to be.

The Eaton Vance Tax-Managed Diversified Equity Income Fund ( ETY ) is a closed-end fund that income-focused investors can purchase as a way of achieving their goals of earning a high level of current income from the assets in their portfolios. As the name of the fund suggests, the Eaton Vance Tax-Managed Diversified Equity Income Fund invests primarily in common stocks and other equity securities as opposed to the fixed-income securities that comprise the portfolios of most income-focused closed-end funds. There are a number of advantages to this, especially when it comes to protecting the purchasing power of your wealth against inflation. As I explained in a recent article , there are some reasons to believe that the true rate of inflation is far higher than what the consumer price index indicates. If we accept that this is the case, then fixed-income securities today might not have sufficient after-tax yields to offset the erosion of purchasing power that is caused by inflation. Equities, however, should be better at this task due to the fact that inflation should cause revenue and net income growth for the company that issued the equity securities. As such, a fund like the Eaton Vance Tax-Managed Diversified Equity Income Fund could be a better long-term holding than any fixed-income fund if one of your goals is to maintain the purchasing power of your wealth.

The fund does not disappoint when it comes to income. As of the time of writing, the Eaton Vance Tax-Managed Diversified Equity Income Fund boasts an 8.43% yield. This is obviously far above the current yield offered by the S&P 500 Index or any other major domestic stock indices:

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