Earnings Update: Eaton Vance Buy-Write CEFs

Includes: EOI, EOS, ETB, ETW, ETY, EXG
by: Greg Group

With the close of the 4th quarter, it's time for new earnings from the closed-end fund managers. Recently, Eaton Vance released year-ended earnings for three of their CEFs: EOI, ETY and ETB. Eaton Vance also released 9-month reports for the following CEFs: ETW, ETB, EOS, ETV, and ETJ. The overall results are mixed, but there are more poor results than good to report for these CEFs.

For the year ended October 2011, the Eaton Vance CEFs had very poor results. All three of the CEFs reporting full-year results have income shortfalls from operations with high return of capital percentages. These are the type of results that make investors run for the door. All return of capital is not bad as unrealized gains, such as outstanding option gains are classified as return of capital until they are closed out. However, when a fund has a high return of capital combined with a net income shortfall, there is a problem within the fund. When a fund pays out more distributions than income it earns, then it is returning paid-in capital to investors. This may lead to a future distribution cut or even more return of capital to investors. No one invested in these CEFs merely to get their capital handed back, disguised as distributions.

Eaton Vance Enhanced Equity Income reported a ($0.45) per share income shortfall with a 93% return of capital and a 13% decrease in NAV over the 12-months ending in October 2011. Eaton Vance Tax-Managed Global Divers Equity EXG reported a ($0.70) per share income shortfall with an 84% return of capital and a 12% decrease in NAV while Eaton Vance Tax-Managed Divers Equity Income reported a ($0.92) income shortfall with a 90% return of capital and an 11% decrease in NAV. All of these funds seek current income with capital appreciation through investment in common stocks and through utilizing a covered call and options strategy. Following these earnings results, there is no compelling reason to invest in any of these three covered call income strategy CEFs.

On a more upbeat note, three CEFs had more positive results in their 9-months ending September 2011. These CEFs include ETW, ETB and EOS. Interestingly, all of these funds utilize a buy-write option strategy. Eaton Vance Tax-Managed Global Buy-Write Opportunity Fund reported total net income gains of $0.51 per share after paying dividends. There is not much worry about its 87% return of capital with such a strong income surplus, as unrealized gains make up most of the ROC. Eaton Vance Tax-Managed Buy-Write Income reported a $0.23 per share net variance while Eaton Vance Enhanced Equity Income had a $0.22 per share net variance.

Each of these CEFs had a decrease in NAV as the 3rd quarter market pullback occurred near the end of the 9-month reporting period. Of the Eaton Vance CEF earnings, these three funds are the best bets to add to your CEF watch list for future purchases.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.