Eaton Vance Tax Managed Diversified Equity Income Fund is traded on the New York Stock Exchange under the symbol ETY. It is part of a similar group of closed end funds (CEFs) sponsored by Eaton Vance, a well known and respected investment advisor. This is a fund geared to show added income by selling options against its position. It has performed very poorly and has a discount from net asset value of approximately 16.01%. It has a managed distribution program which produces a payout that is far in excess of its investment income. It has a broadly global diversified portfolio. I have examined the portfolio and am not sure why is has done so poorly.
This is a very large fund which as of October 31, 2011, had net assets of $1,651,550,686. Interestingly, its total call writing program was only $28,658,025 representing 1.8% of assets. The only options ETY was writing were S & P 500 Index Calls.
Performance was poor for its last fiscal year, being as follows:
|Fund at net Asset Value||(.27)%|
|Fund at Market Value||(10.88)%|
|S & P 500 Index||8.09%|
|CBOE S & P 500 Buy-Write Index||4.57%|
The fund's five largest sector allocations were as follows:
Although intended to invest globally 73.5% of assets were in the United States, with 6.9% in the United Kingdom, 4.3% in Germany and 3.3% in France. It is highly diversified with its ten largest holdings only constituting 22.4% of assets. Its largest holding is Apple which is 4% of net assets.
ETY does have an accumulated net realized loss of $ 441,196,157 but this is partially offset by $113,941,146 in unrealized appreciation. The fund has net expenses of 1.07% and a turnover rate of 63% which has been as high of 221%.
ETY is designed to produce income, but last year it had net income of only 1.03%. It is not doing its job of producing income. I am not sure what went wrong. It is obvious that they should have sold more calls in keeping with their mandate of generating excess income. It could be that they thought the market was cheap enough and did not wish to sacrifice future gains by selling more calls to generate additional income. I really do not know.
Eaton Vance is a fine investment management company and there are many large buy/write firms similar to ETY. If performance improves, then the existing discount makes it a bargain.