ETJ: Noticing a Bogey

Jun.23.09 | About: Eaton Vance (ETJ)

A reader asked what I though about the Eaton Vance Risk Managed Diversified Equity Income Fund (NYSE:ETJ), which is a closed end fund. The reader notes it sells puts and buys puts, along with owning common stocks.

Aside from a violent spasm last October, ETJ has held up well price-wise, dropping 10% in the last year as the S&P 500 has dropped 30%. It seems that most of the time it correlates closely to the broader market. Additionally it yields 10%. On the surface: not too shabby.

These days when I see that type of yield my first inclination is to see how much of the payout was a return of capital. Well, according to this, the dividend for April was $0.45 of which $0.405 was a return of capital and the rest was net income. Ouch. I did not look back at other dividends to see what portion of past payouts were a returning of capital, but maintaining a 10% "yield" is a big bogey for a fund to keep up with. I would not want a lot of exposure to closed end funds who are returning capital to make their payouts.