Eaton Vance Tax-Managed Buy-Right Opportunities Fund: Yearly Review: Is The Premium Worth It ?

| About: Eaton Vance (ETV)

Summary

Eaton Vance Tax-Managed Buy-Right Opportunities Fund is a closed end fund and has a steady monthly income of $0.1108/month or 8.7%/year.

Total return beats the DOW average, over the last 49.5-month test period.

The Fund is 35.78% in Tech companies higher than the distribution of the S&P 500 (the fund's model) of 20.77%.

Moderate downside protection and income from covered call writing.

This article is about Eaton Vance Tax-Managed Buy-Right Opportunities Fund (NYSE:ETV) for steady monthly income and a secondary goal of capital appreciation. The fund tries to model the S&P 500, but is 15% higher in Information Technology and 4.0% higher in the Consumer Discretionary sector. The ETV fund invests in large Cap and Mid Cap companies and would be a good addition to a portfolio needing more diversification in this category. Topics to be looked at are Yearly Income Percentage And Total Return, Company Allocation, Covered Calls, Distributions, and Takeaways.

Yearly Income Percentage And Total Return

Being in retirement, my goal is to have a steady monthly income, without the swings of dividends that are paid on a quarterly or yearly basis. The ETV fund distribution of 8.7%/year (0.1108$/Month) return in today's low interest rate environment is fantastic and gives my income companies a solid footing.

I calculated the total return of ETV over a 49.5-month period starting with January 1, 2013 till February 2017 YTD, 49.5 months in total. I chose this time because it includes the great year of 2013, and other years that had fair and bad performance. ETV outperformed the DOW average by over 15%. For the 49.5-month period, the DOW total return was 56.48% and ETV beat it at 6.70%. ETV does really well in an up market and is following the market in this volatile up market YTD. The economy seems to be moving forward slowly which is good for ETV with its covered call approach to dampen the swings of the market.

Company

Total Return for 49.5 Months

Difference from Dow Baseline

Yearly Distribution

ETV

63.18%

6.70%

8.7%

DOW Baseline

56.48%

---------

------

Company Allocation

The Eaton Vance website gives a full list of the companies and percentage of each company in the fund portfolio for the latest quarter. The table below gives the top ten companies for the fund and their percentage in the fund portfolio. Using price chart data, I calculated the total return of the ETV top 10 companies out of 189 that the fund owns. All ten outperformed against the DOW average in total return of 56.48% over the 49.5-month test period.

The total percentage for the top ten companies in the fund is shown at the bottom of the table. So overall, the fund has good companies in its portfolio producing a total return above the DOW average over the 49.5-month test period.

Company

Percentage

In Portfolio

Apple (NASDAQ:AAPL)

7.27%

Microsoft Corp. (NASDAQ:MSFT)

5.89%

Amazon.com Inc. (NASDAQ:AMZN)

4.30%

Alphabet Inc. Cl. A (NASDAQ:GOOG)

3.26%

Facebook (NASDAQ:FB)

3.03%

Comcast Corp. (NASDAQ:CMCSA)

2.61%

Alphabet Inc. Cl. C (NASDAQ:GOOGL)

2.55%

Celgene (NASDAQ:CELG)

1.71%

Gilead Sciences Inc. (NASDAQ:GILD)

1.67%

Texas Instrument (NYSE:TXN)

1.62%

Total

33.91%

Source: Eaton Vance

As seen from the table above, the fund is concentrated on well-known tech companies. The fund is much higher in the Information Technology sector at 35.78% than the S&P index the fund tries to model at 20.77%, about 15% higher. The fund is also 4% higher than the index in the Consumer Discretionary sector.

Covered Calls

ETV sells index covered calls against 96% portfolio value with an average duration of 16 days and the percent out of the money of 1.3%. Covered calls provide ETV's fund portfolio some downside risk protection and extra income to smooth out the normal market gyrations. The management in using covered calls has the time to use covered call exit methods if the market price goes against them. For ETV selling index covered calls on the portfolio value provides a steady income that does well in total return in a strong up market and gives some downside protection in weaker markets.

In this volatile market, the covered calls do not give enough protection to stop the fund price from taking a hit, but over the long run, ETV does well. If you want to learn about covered calls, I recommend the books written by Alan Ellman on the subject.

Distributions

Each month, the fund issues a statement saying which part of the distributions comes from short-term capital gains, long-term capital gains, investment income and return of capital. It is best to have ETV in a taxable account to take advantage of the tax friendly nature of the fund. ETV's distribution for December 2016 has the cumulative distributions for the year that was 8.9% investment income, 0.0% short-term capital gains, 32.7% long-term capital gains and 58.4% return of capital.

This is typical with return of capital and long-term gains being a significant part of the ETV distribution. The fund does really well in a strong up market and follows the market in an average market. The fund managers advise against drawing any performance conclusions from the distribution breakdown. They do manage the fund payouts to try and keep the monthly payment constant and being tax friendly.

The negative side of the return of capital is that it reduces your cost basis so that upon selling, you will have a larger long-term capital gain if held more than a year in a taxable account. For a full explanation of return of capital, please refer to the article written by Douglas Albo (CEFs and Return of Capital: Is It as Bad as It Sounds?).

I started investing in the ETV fund about a year ago when the fund had a discount of about 5%. Now the fund has a market price that has a 6% premium. I feel that the management has shown that it knows how to run the fund and make money in both good and bad markets. I still think the ETV fund is a buy especially if you want a fund high in tech companies.

Takeaways

ETV is a good income vehicle in a taxable account. It gives a high monthly distribution, which is steady and beats the DOW averages over the test period of 49.5 months. It also provides someone like me, who generally picks his own companies an easy means of buying a diversified portfolio of Large-Cap and Mid-Cap tech companies, without having to research each company in detail. Even with the premium right now, I still believe that ETV will outperform the market and give good steady income.

ETV is a good complement to individual company positions. ETV follows the market in an average market and does really well in a strong up market. ETV also provides steady income, with fund price muted both on the upside and downside swings by the covered calls. Even if you have an IRA or tax-deferred account, ETV's beating the DOW can be bought in an IRA type account also for steady income.

ETV is not part of The Good Business Portfolio that I usually write about (see my article on The Good Business Portfolio: 2016 third-Quarter Earnings and Performance Review for the complete portfolio list), but is held in a small Taxable account I have. I am long ETV .

Of course, this is not a recommendation to buy or sell, and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.

Disclosure: I am/we are long ETV, TXN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500. Become a contributor »
Tagged: , , , Closed-End Fund - Equity
Problem with this article? Please tell us. Disagree with this article? .