ETY - ETY: Share Price Outperforming The Underlying Portfolio But Still Trading At A Discount

2024-03-07 06:33:40 ET

Summary

• Eaton Vance Tax-Managed Diversified Equity Income Fund offers a reasonable yield, but it is far from the highest available in the CEF space.
• The fund has outperformed the S&P 500 Index recently and provided a 16.38% total return to investors in less than four months.
• The fund's strategy involves writing options on the S&P 500 Index to generate income, but its emphasis on dividend-paying stocks may be misleading, as many of its top holdings have low dividend yields.
• All six of the fund's six largest positions are mega-cap technology companies, and they account for 34.1% of total assets, which makes it difficult to call the fund "diversified."
• The fund did fully cover its distributions in the most recent full-year period, and it trades at a discount to NAV.

The Eaton Vance Tax-Managed Diversified Equity Income Fund ( ETY ) is a closed-end fund that can be employed by investors who are seeking to earn a high level of income from the assets in their portfolios but do not want to give up all of the potential capital gains that accompany an investment in common equities. Unfortunately, the fact that this is an equity closed-end fund means that its yield is going to be a bit lower than some other funds that are available in the market, as its current 7.38% yield cannot really compete with the better fixed-income funds. In fact, some other equity funds that employ options strategies such as the BlackRock Enhanced Equity Dividend Trust ( BDJ ) also boast higher yields. With that said, the Eaton Vance Tax-Managed Diversified Equity Income Fund still has a substantially higher yield than the 1.31% currently paid out by the S&P 500 Index ETF ( SPY ). The fund's current yield is also quite a bit higher than safe fixed-income options such as Treasury securities and money market funds. As such, income investors may be reasonably satisfied here, even if the fund is not the highest-yielding option in the market right now.

As regular readers can likely remember, we previously discussed the Eaton Vance Tax-Managed Diversified Equity Income Fund in mid-November 2023. The equity market has generally been pretty strong since that time, as the S&P 500 Index ( SP500 ) is up a whopping 12.79% since November 15, 2023. That is better than the historical average annual return of this index. As such, we might expect that the Eaton Vance Tax-Managed Diversified Equity Income Fund has also had a fairly strong run, although the fund's option-writing strategy component will ordinarily reduce its performance somewhat. Curiously though, this has not been the case this time as the fund's share price has actually outperformed the index. As we can see here, shares of the fund are up 13.33% since my previous article on it was published:

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