EXG: Global Call Writing Fund For Monthly Distributions

seekingalpha07-09

Eaton Vance Tax-Managed Global Diversified Equity Income Fund provides investors exposure to some global investments and is trading at an attractive discount.The EXG fund writes call options against ...

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Eaton Vance Tax-Managed Global Diversified Equity Income Fund (NYSE:EXG) provides investors with exposure to a global portfoli","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"ETW":"Eaton Vance Tax-Managed Global B","EXG":"Eaton Vance Tax-Managed Global D"},"translate_title":"EXG：每月分发的全球看涨期权写作基金","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ETW":0.6,"EXG":0.6},"content_text":"Eaton Vance Tax-Managed Global Diversified Equity Income Fund provides investors exposure to some global investments and is trading at an attractive discount.The EXG fund writes call options against indexes as well as capital gains to help provide a monthly distribution to investors.With the fund's strategy, it can often generate return of capital distributions for investors that help accomplish its \"tax-managed\" emphasis.   Daniel Grizelj Written by Nick Ackerman, co-produced by Stanford Chemist. Eaton Vance Tax-Managed Global Diversified Equity Income Fund (NYSE:EXG) provides investors with exposure to a global portfolio. However, there is still significant exposure to some familiar names in their top allocations, primarily the mega-cap tech names that most investors are familiar with. This fund also incorporates call writing against indexes to help provide a monthly distribution to investors. The fund remains trading at a deep discount, but it has narrowed slightly since our prior update. That narrowing discount helped to provide a small boost to the fund's overall total return since our prior update. Additionally, the fund announced an increase in its monthly distribution since our last update.   EXG Performance Since Prior Update (Seeking Alpha) EXG Basics  1-Year Z-score: 0.29 Discount/Premium: -10.95% Distribution Yield: 9.41% Expense Ratio: 1.08% Leverage: N/A Managed Assets: $2.882 billion Structure: Perpetual.  EXG will  \"invest in a diversified portfolio of domestic and foreign common stocks with an emphasis on dividend-paying stocks and writes call options on one or more U.S. and foreign indices with respect to a portion of the value of its common stock portfolio to generate current cash flow from the options premium received.\" Performance: Discount Has Appeal The fund also writes index calls against primarily the S&P 500 Index (SP500), but also several international indexes as well. That can help generate options premium that can be paid out to investors on a monthly basis. At a 50% overwrite target, that leaves a healthy portion of its portfolio to experience some uncapped upside. That is naturally a concern for call writing funds or covered call writing funds, that upside can be limited while still having significant exposure to the downside. There is some downside cushion as the premiums come in, but those can only go so far in covering potential losses in a market that is in a broader selloff. That's why you'll generally see EXG perform even better than its other Eaton Vance sister fund, the Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW) because ETW targets an overwrite of 100%. We saw that in the last decade, EXG was easily able to outperform as we've been mostly in a strong bull market.   Ycharts In a bear market, one would then expect that ETW should have outperformed in terms of limiting losses. Well... that actually didn't happen in our last bear market year of 2022. Both funds experienced nearly identical total NAV return declines (and total share price results.)   Ycharts That really does bring up the case of why it would be worth owning ETW over EXG, which I actually do. There is a rather subtle nuance difference between the funds. That is, ETW's benchmarks incorporate the S&P 500 and MSCI Europe Indexes; EXG's benchmark is the MSCI World Index. This impacts positions in the fund and the indexes that they write calls against. Therefore, that could be playing a role in terms of not seeing what we'd expect to see in a rather drawn-out bear market such as 2022. So, that could bring up the argument to be made that the future could be different. Further, ETW could be picked up at a larger relative discount compared to EXG. However, even the discount only slightly favors ETW currently, as both EXG and ETW are sporting some attractively deep discounts. Interestingly, ETW has historically traded at an average discount that was slightly narrower when compared to EXG's average.   Ycharts With all that said, if I were to make a choice on which global call writing fund to put money to work in today, it would be EXG. Distribution: Attractive Monthly Payout Like many of the Eaton Vance equity funds, this fund also cut its distribution in the bear market of 2022. It then, similarly to many of the Eaton Vance equity funds, increased the monthly distribution earlier this year.   EXG Distribution History (CEFConnect) It was announced right shortly after our prior update. I had even suggested we may be in a situation where an increase was possible. At this rate, we could almost be in a position for the fund to raise its payout to investors, assuming the market continues to remain relatively calm and perform well. The market performing well is a real concern for the distribution because, like many equity CEFs, it will rely significantly on capital gains to fund its payout to investors. This was because after Eaton Vance had cut their distributions, the markets began to recover from their bear market lows that were hit in October 2022. As mentioned, as an equity fund, they will require capital gains to fund their distribution. In terms of net investment income, that provides the fund relatively limited coverage for its distribution.   EXG Semi-Annual Report (Eaton Vance) NII coverage was about 14.23% as of their last semi-annual report, and after an increased distribution, it'll be even lower. Instead, it's the options premium and underlying portfolio that will drive the distribution coverage. In a rapidly rising market like we've seen during the time of this six-month report, the written options actually produced realized losses for the fund.   EXG Realized/Unrealized Gains/Losses (Eaton Vance) That said, the unrealized portfolio appreciation more than offset those losses experienced. This works out perfectly and is one of the reasons this is a \"tax-managed\" fund because this can produce return of capital distributions for investors. With ROC distributions, there can be \"good\" ROC or \"destructive\" ROC. In terms of EXG, it has seen a fair bit of ROC that has been destructive, admittedly, as we've seen its NAV decline.   Ycharts However, it hasn't all been destructive. In fact, 2023 was an example where the fund performed quite well, yet we saw a sizeable portion of the distribution classified as ROC.  For EXG, 2023 listed that a majority of the distribution was ROC. What portion that wasn't ROC was either qualified dividends or long-term capital gains - which are further tax-friendly classifications for distributions.   Eaton Vance Distribution Tax Character (Eaton Vance (highlights from author))  EXG's Portfolio EXG carries a sizeable allocation to positions around the globe. Europe is the second-largest allocation outside of North America, with Asia/Pacific in a distant third place. Latin America/Caribbean and Africa basically have negligible amounts of exposure.   EXG Geographic Allocation (Eaton Vance) However, in looking at the fund's top ten holdings, the largest representation is dominated by the mega-cap tech names that most investors are familiar with. That's probably a good thing, as performance would be quite weak if the fund hadn't put a heavy weight towards these names.   EXG Top Ten Holdings (Eaton Vance) They also have to have a sizeable weighting to these names because of the call-writing options they are utilizing. An index can't be owned directly, so the underlying portfolio has to follow a similar trajectory to the indexes they are writing options on to have them indirectly hedged or covered, essentially. Here's a look at the calls written that they had outstanding as of their last semi-annual report.   EXG Written Call Options (Eaton Vance) This is only to give a good example of what the call writing contracts look like because, as we can see, these have all expired by now. This is because, similar to the other Eaton Vance index call writing funds, they write options that are about two weeks out and continuously roll these shorter-term options.   EXG Option Stats (Eaton Vance) They write at-the-money options, which gives them the highest amount of premium without being in-the-money. However, that's why many call writing funds will have capped upside because once the price of the underlying security moves above the strike plus the premium received, upside participation stops. A position can be closed and rolled, but that still causes losses to close out the position—which is precisely why, in a market that is trending higher at a strong enough pace, as we saw in the last six-month report, you'll see the written options contributing to realized losses. Conclusion  EXG is a fund that provides some significant global exposure but is still allocated meaningfully to the mega-cap tech names. The fund writes calls on various indexes to generate option premiums that can be used to help fund the monthly distribution. If the options are generating losses, then that will generally mean the underlying portfolio is performing well. That's why it's a good idea to hold positions that will mirror the underlying indexes' performances as a way to essentially have those options contracts \"covered.\" The fund is also trading at an attractive discount at this time, making it a relatively more attractive choice for investors today.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"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":"4.29.1","shortVersion":"4.29.1","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/2450786029"}