Eaton Vance Enhanced Equity Income Fund trades on the New York Stock Exchange under the symbol EOI. It is one of a series of closed end funds launched by Eaton Vance. EOI was intended as a buy / write fund, selling calls against an equity portfolio to produce additional yield. Although Eaton Vance is a large, well recognized investment manager, EOI has been a continual disappointment on multiple levels. At present, it is selling at a very high discount from net asset value and this makes it somewhat attractive. In addition, its basic underlying portfolio seems to contain a diversified portfolio of quality large capitalized moderate growth stocks.
EOI, as of September 30, 2012, had a portfolio of 75 different company shares of which 98.9% were domestic and 1.1% were foreign. It pays a monthly dividend.
The problem is that it does not write as many options against its positions as it should. It only has calls written on 58 of the company shares in its portfolio and the average call only has 37 days to expiration. Covered calls written are only 1.6% of its entire portfolio.
EOI was launched on October 29, 2004 and its performance has been as follows:
| 1 year | 5 year | since inception | |
| at Net Asset Value | 25.24% | 0.69% | 4.68% |
| at Market Price | 25.06 | (0.39) | 2.94 |
| S & P 500 Index | 30.20 | 1.05 | 5.27 |
| CBOE S & P 500 buy/write Index | 25.31 | 2.12 | 4.38 |
On September 30, 2012, the discount from net asset value was 12.41% and has since widened to in excess of 15%. It is worth considering with this kind of discount.
It is well diversified, with sector allocation being as follows:
| Information Technology | 22.3% |
| Financials | 13.3 |
| Energy | 11.5 |
| Health Care | 11.4 |
| Consumer Staples | 10.6 |
| Consumer Discretionary | 10.3 |
| Industrials | 8.1 |
| Telecommunication | 3.6 |
| Utilities | 3.4 |
| Materials | 3.2 |
Its ten largest holdings constitute only 28.6% of assets and are as follows:
| Apple (AAPL) | 4.7% |
| Exxon Mobile (XOM) | 3.2 |
| QUALCOMM(QCOM) | 3.0 |
| Coca Cola (KO) | 2.9 |
| IBM (IBM) | 2.7 |
| Google (GOOG) | 2.6 |
| Philip Morris (PM) | 2.5 |
| Wells Fargo (WFC) | 2.5 |
| Accenture (ACN) | 2.3 |
| Pfizer (PFE) | 2.2 |
As of September 30, 2012, the fund had net assets of $503,828,134 of which 2.3% was in short term near cash investments. Its only liability is the $8,223,185 from the covered call options. EOI had a loss carryforwards of $144,559,745 and unrealized appreciation of $111,624,575.
For a buy/write fund seeking additional yield, net investment income has been poor. The five year ratios have been uninspiring and are as follows:
| 2012 | 2011 | 2010 | 2009 | 2008 | |
| Return on Net Asset Value | 25.24% | (4.63%) | 6.87% | (6.20%) | (13.54%) |
| Return on Market Price | 25.06 | (17.12) | 6.02 | 18.23 | (24.23) |
| Expense Ratio | 1.15 | 1.15 | 1.12 | 1.17 | 1.10 |
| Investment Income | 0.80 | 0.52 | 0.69 | 1.17 | 0.79 |
| Portfolio Turnover | 35 | 78 | 27 | 65 | 117 |
CONCLUSION
I really do not know why they have done so badly. They do have a nice portfolio. They should not call themselves a buy/write fund but rather a large capitalization growth fund. At these high discount levels, the fund is worth a nibble.
Disclosure: I am long EOI.
