EOS: One Of The Few Undervalued Tech CEFs

seekingalpha03-09

zbruch Thesis With the massive rally in the Nasdaq and technology shares this year, it is worth revisiting an Eaton Vance name focused on said sector. We started covering the Eaton Vance Enhanced ...

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We started covering the Eaton Vance Enhanced ...</p>\n\n<a href=\"https://seekingalpha.com/article/4677155-eos-one-of-the-few-undervalued-tech-cefs\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>EOS: One Of The Few Undervalued Tech CEFs</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nEOS: One Of The Few Undervalued Tech CEFs\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-03-09 16:07 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4677155-eos-one-of-the-few-undervalued-tech-cefs><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>zbruch Thesis With the massive rally in the Nasdaq and technology shares this year, it is worth revisiting an Eaton Vance name focused on said sector. We started covering the Eaton Vance Enhanced ...</p>\n\n<a href=\"https://seekingalpha.com/article/4677155-eos-one-of-the-few-undervalued-tech-cefs\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FDN","symbol_name":"First Trust Dow Jones Internet I","start_time":0,"source_url":"https://seekingalpha.com/article/4677155-eos-one-of-the-few-undervalued-tech-cefs","article_id":"2418766840","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1488457074/image_1488457074.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2418766840","pubTimestamp":1709971652,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"zbruch Thesis With the massive rally in the Nasdaq and technology shares this year, it is worth revisiting an Eaton Vance name focused on said sector. We started covering the Eaton Vance Enhanced Equi","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"FDN":"First Trust Dow Jones Internet I","BK4585":"ETF&股票定投概念","QQQX":"Nuveen NASDAQ 100 Dynamic Overwrite","QID":"纳指两倍做空ETF","QQQY":"Defiance Nasdaq 100 Enhanced Options Income ETF","EOS":"Eaton Vance Enhanced Equity Inco","BK4550":"红杉资本持仓","PSQ":"纳指反向ETF","QQQ":"纳指100ETF","QLD":"纳指两倍做多ETF","TQQQ":"纳指三倍做多ETF","VXX":"短期VIX期货ETN","VIXY":"波动率短期期货指数ETF","UVXY":"1.5倍做多波动率指数短期期货ETF-ProShares","SVXY":"0.5倍做空波动率指数短期期货ETF","SQQQ":"纳指三倍做空ETF",".IXIC":"NASDAQ Composite","TVIX":"二倍做多VIX波动率指数短期期权ETN"},"translate_title":"EOS：少数被低估的科技CEF之一","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"EOS":1,"QQQY":1,"QQQX":1,"VXX":0.9,"FDN":0.9,"TVIX":0.9,".IXIC":0.83,"QLD":0.6,"VIXY":0.6,"UVXY":0.6,"TQQQ":0.6,"SVXY":0.6,"SQQQ":0.6,"QQQ":0.6,"QID":0.6,"PSQ":0.6,"VIXmain":0.6,"NQmain":0.6,"MNQmain":0.6},"content_text":"zbruch Thesis With the massive rally in the Nasdaq and technology shares this year, it is worth revisiting an Eaton Vance name focused on said sector. We started covering the Eaton Vance Enhanced Equity Income Fund II (NYSE:EOS) a year and a half ago, closely analyzing its structure and technology tilt. The name is very interesting because it exposes the difference between the CEF structure and the ETF structure, all while performing its duties in a much more efficient and robust way when compared to other offerings in the market. EOS is a buy-write fund that utilizes written call options to extract dividends from equites. Unlike some of its peers, EOS only covers half of its portfolio with options, the rest remaining as an outright exposure:   Holdings (Fund Fact Sheet) This build has helped the name navigate the vicious technology rally in the past year in a very successful manner, easily outperforming a plethora of other buy-write CEFs as well as buy-write ETF peers. In this article we are going to revisit the name in light of today's low VIX environment, and present an informed reader our opinion regarding utilizing this name for technology exposure in a market that is otherwise very extended. Structure matters - pay attention to how a fund is built One of the big drawbacks for buy-write CEFs in the past year has been constituted by 100% coverage via options. Even when you write out of the money calls, bull markets move faster than option expiries, causing performance to lag. Add to that a low VIX environment, and you get the perfect cocktail for underperformance. One of the preferred structural features for today's market has been the 50/50 portfolio utilized by EOS. The CEF only writes options on 50% of its holdings, all while having a large 'margin of safety' via a 4% out-of-the-moneyness. This build ensures 50% of the portfolio is a pure long exposure, while the covered half produces the option premiums necessary to sustain the distribution. Violent rallies in short periods of time have less of an impact on this name versus its peers, given the large outright exposure in the fund. 50/50 builds have been one of the best to have in the past year. Another notable observation from the recent past is that in a low VIX environment, funds with a higher 'out-of-the-moneyness' have performed slightly better given the significant rally in the outright exposure. A low VIX level means options generally pay a low premium, thus gains have been made from delta exposures rather than selling vega (i.e. selling vol). Crushing its competition via its build We have now established that EOS has the correct build for today's environment. If we look at the fund's performance, we can see why our opinion is validated by the CEF's performance:   1-year Total Return (return) EOS has been the best instrument at tracking the Nasdaq from its cohort. If we look at the Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX) and at the Defiance Nasdaq 100 Enhanced Options Income ETF (QQQY) we can see them lagging significantly. We have covered QQQX here with a 'Sell' rating, outlining why we believe the fund's build is not correct for today's market versus an outright exposure or its peers. The fund has severely underperformed the Nasdaq and EOS since. Let us have a look:   Performance since Aug 2023 (Seeking Alpha) We wrote the article on August 23, 2023, and the Nasdaq is up over 21% since. EOS has posted a total return of 20% plus, all while QQQX is up only 7%. Structure does matter, and understanding what a fund (be it CEF or ETF) actually does in a particular market environment is paramount for a successful portfolio performance. All of the above analysis is done on a total return basis, the appropriate way to analyze CEFs. For yield hungry investors, the only drawback exposed by EOS is its propensity to build capital gains rather than have an eye-popping dividend yield. The fund currently pays only 6.7% in dividends, with the rest coming from capital appreciation. Valuation is attractive for EOS when compared to peers One of the features of the rally in tech in the past year has been the overall low level in the VIX. Low VIX levels have resulted in low options premiums, which in turn have put pressure on the premiums of many buy-write CEFs: Data by YCharts EOS usually trades flat to NAV, but now finds itself at a wide -4.7% discount, even when it has been able to track the Nasdaq quite closely. Correlate the discount with the 0% discount for QQQY for example. QQQY is an ETF, hence via its build it is trading at NAV, yet its performance has been lagging. The other underperformer mentioned in the article, namely QQQX, is trading at a -9% discount to NAV, yet its performance is trailing by -14%. EOS is off from the Nasdaq by merely 1% in the past year, making its discount to NAV unjustified on a relative value basis. We feel tech is stretched here, but the market can be irrational for longer than we can be solvent as someone once said, thus we feel the best approach in today's market is to find the most suitable instruments to use. EOS is an appropriate tool via its discount for tech exposure. A market which ceases to climb and just tread water will see the CEF's discount narrow or even move to a premium, as the fund will actually outperform. A continuation of the moves seen in the recent months will elicit a similar performance from the CEF when compared to the index, thus providing for a closely aligned proxy. Conclusion  EOS is an equity closed end fund. The vehicle aims to capture the returns of large capitalization growth stocks, and has tracked the Nasdaq to a large degree in the past year from a total return perspective. The fund has a good structural build for today's environment, exposing a 50/50 portfolio options coverage with a 4% 'out-of-the-moneyness'. With low volatility levels and vicious bull rallies, the market has punished most buy-write funds, vehicles which have not been able to keep up with the indices. EOS is an exception, having done a tremendous job in the past year, beating its peer group by a large margin. Despite its performance, EOS is now trading at a large -4.7% discount to NAV, which is excessive when compared to its low performing competitors. While technology is stretched (in our opinion), EOS represents a robust tool in today's market in order to obtain exposure to large cap tech, being able to deliver positive returns even if equities stagnate.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2418766840"}