ETG: An Attractive Tax-Advantaged Fund

Eaton Vance is a leader in the tax-efficiency movement and has launched a number of funds designed specifically to reduce tax exposure, including Eaton Vance Tax-Advantaged Global Dividend (NYSE: ETG).

ETG is a broadly focused fund with a heavy weighting in foreign markets. The primary goal is simple: distribute a high level of dividend income that qualifies for the reduced tax rate. The managers focus on companies that are likely to raise dividends and have substantial capital appreciation potential.

At the moment, the portfolio includes roughly 130 stocks, and the high-yielding utility, energy and financial sectors represent more than half of the fund's assets. From a geographic standpoint, the portfolio is split almost equally between North America and Europe.

Following a sharp increase last April, shareholders can currently expect monthly distributions of $0.1438 per share. That works out to an annual payment of about $1.73 per year, for a yield of 6.9%. And if the past is any indication, then the lion's share of those payouts will be taxed at the favorable 15% rate.

For the fiscal year ending October 31, 2007, the fund reported net investment income (after paying dividends on preferred shares issued for leverage) of $124.5 million, or $1.63 per share -- and 100% of its ordinary income qualified for the reduced rate.

Meanwhile, shareholders were treated to total returns (dividends plus appreciation) of +27.2% for the year, versus just +10.8% for the benchmark Russell 1000 Value Index. And over the past 3 calendar years, ETG has returned an average of +15.4%.

In recent months, ETG's managers have countered the threat of rising inflation by shifting into hard assets -- a move that has already paid off. And looking ahead, the fund has just secured the financing to redeem all of its $750 million in preferred shares and will begin using lower-cost debt to fund its leverage -- which should leave more cash left over for dividends, helping to make it a good fit for anyone looking to maximize their after-tax global income.

Disclosure: No position

Comments

[AKJ]

This is a good find - I'd like to learn more:
- are there competing ETF's to compare this to? I've seen other high dividend ETFs, but not another high dividend, tax-advantage ETF.
- what's the long term prospect of the 15% dividend tax rate if the Democrats take the White House?
- the trading price got very volatile in 2007 compared to earlier years - what do you think's driving this and will the volatility continue going forward?

[Longwave]

"heavy weighting in foreign markets" but denominated in depreciating U.S. dollars: not a good scene. Is there a Canadian dollar or Euro equivalent ETF? How would I hedge against an anticipated decline in the U.S. dollar?

[Healthy]

Just great (NOT!).... you may be picking up dangerous financial companies with this and might see dividends cut.

[mcc17ss]

They also have two other tax-advantaged dividend CEFs - ETO and EVT. How do these compare with the slew of open-end ETFs already available? I mean DVY, SDY, PEY, etc. are available at much lower expense ratios, albeit lower dividend rates too. Is this a case of too many choices for the individual investor (i.e., me)...

[khaz]

I have been long EVT for over a year and a half, and I have been extremely pleased with the dividend. If you chart ETO, EVT, and ETG, you will notice that all three are highly correlated.

To respond to mcc17ss - one key difference between EVT/ETG and DVY is the use of leverage (hence closed) to execute a dividend capture strategy. The recent volatility can be partially attributed concerns over the collapse of the auction rate securities market, as Eaton Vance used ARS for the 'leverage'. However, management successfully secured an alternative to ARS. I encourage you to research dividend capture CEFs if you are looking for tax advantaged high yield and are restricted to equities or are looking at capital appreciation for a total return. Otherwise, it is hard to argue with Bill Gross about the prospect for total return on munis.

[mcc17ss]

Thanks for the input; EVT does look good especially now that they are out of the "ARPS" leverage scheme. Here's one for you: BBPDY (Barclay's preferred series 5, 8.125%) soon to be on the NYSE.


On Apr 23 01:20 AM khaz wrote:

> I have been long EVT for over a year and a half, and I have been
> extremely pleased with the dividend. If you chart ETO, EVT, and
> ETG, you will notice that all three are highly correlated.
>
> To respond to mcc17ss - one key difference between EVT/ETG and DVY
> is the use of leverage (hence closed) to execute a dividend capture
> strategy. The recent volatility can be partially attributed concerns
> over the collapse of the auction rate securities market, as Eaton
> Vance used ARS for the 'leverage'. However, management successfully
> secured an alternative to ARS. I encourage you to research dividend
> capture CEFs if you are looking for tax advantaged high yield and
> are restricted to equities or are looking at capital appreciation
> for a total return. Otherwise, it is hard to argue with Bill Gross
> about the prospect for total return on munis.

[sf123]

EVT has a solid management. But I wonder the 25% leverge would cause troubles in a steep market downturn.