EXG - EXG: Global Diversification And Good Relative Protection Potential

2023-07-31 08:06:25 ET

Summary

• EXG is a global equity CEF that seeks to provide current income with a secondary objective of capital appreciation.
• EXG employs a covered call strategy.
• I generally like more globally diversified funds at this stage of the cycle, and think that this does provide the fund a unique edge relative to other high income funds.

Every day brings new choices. - Martha Beck

Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) is a global equity CEF that seeks to provide current income with a secondary objective of capital appreciation. The fund, managed by Eaton Vance, has approximately $2.6 billion in assets under management. EXG invests in a diversified portfolio of domestic and foreign common stocks, placing emphasis on dividend-paying stocks. To generate additional cash flow, the fund writes call options on a portion of the value of one or more U.S. and foreign indices.

Use of Call Options

EXG employs a covered call strategy. These options are primarily written on major indices like the S&P 500, Dow Jones Euro STOXX 50, and FTSE 100. The fund's option overlay strategy helps to generate a high yield while providing a degree of downside protection. Doing this on indices helps mitigate the risk of doing such a strategy where gap risk on an individual security might be high.

Geographic Allocation

EXG's investments are split between domestic and foreign stocks. I generally like more globally diversified funds at this stage of the cycle, and think that this does provide the fund a unique edge relative to other high income yielding strategies out there.

Sector Allocation

EXG's sector allocations aligns largely with those of the MSCI World Index. I like the relatively lower exposure to the Technology sector in the fund given the very real risk that the entire sector surprises to the downside on unrealistic future expectations.

Portfolio Holdings

EXG's portfolio consists primarily of mega-cap companies. No real surprises here as the very top holdings are the ones nearly every broad market index has. Still, the lowered overall weightings are a plus.

NAV Performance

Against its peers it's done slightly better than average. I'm not sure the Index is the appropriate one in Morningstar, but regardless it's performed similarly to other moderate risk funds.

Distribution Policy & Risk

EXG follows a managed monthly distribution policy, currently paying out $0.0553 monthly. This consistent distribution, combined with the fund's robust performance, makes EXG an attractive option for income-seeking investors - just keep in mind it's not purely dividends.

While EXG offers promising yield, it is not without risks. These include market risk, currency risk, and the risk associated with the use of derivatives. Furthermore, the fund's option-writing strategy could limit its upside potential during a bull market.

Conclusion

This is a good fund overall from what I can tell. EXG presents a compelling investment opportunity for those seeking a high-yield, diversified equity income fund. The fund's diversified portfolio, covered call strategy, and robust management make it a potential addition to an investor's portfolio particularly in higher volatility regimes where the call writing can buffer declining share prices. The lowered Technology sector allocation, global diversification, and risk profile makes it an interesting fund to rotate to out of high flying US large-cap growth stocks overall.

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