Equity CEFs: Confusion Leads To Another Opportunity In ETG

Summary

• I'm pounding the table again on the Eaton Vance Tax Advantaged Global Dividend Income fund until some smart money gets it.
• Below I've outlined how ETG and its sister fund ETO are extremely similar. So why should ETO trade at a premium while ETG trades at a -8.0% discount?
• Now there's more confusion.  ETG's NAV closed yesterday at $18.39, up $0.03. But some financial quote services show ETG's NAV down -$2.17 or -11.8% to $16.19.  That is incorrect.
• I don't know if that's having an influence on the price today. But when Yahoo Finance, Wall Street Journal and other widely disseminated news sources are showing ETG's NAV down -11.8% yesterday, that has to be having some impact.

I've written more articles on the Eaton Vance Tax-Advantaged Global Dividend Income fund (NYSE:ETG) ($16.91 market price (real time), $18.39 NAV, -8.0% discount, 7.3% current market yield) this year than any other fund, simply because it is the best comparatively valued Eaton Vance (EV) equity CEF available to investors.

Comparative valuation may not mean much to investors. But over time, it can make a big difference in performance, particularly between funds that are in many ways very similar. There appears to be two main reasons why ETG trades at the lowest valuation of all the Eaton Vance equity based CEFs, and neither of these are very valid once you look into them. And now there seems to be a third reason that mysteriously popped up yesterday.

Let's start with the two more longer term misconceptions. The first reason why ETG seems out of place among the Eaton Vance CEFs is because ETG is lumped in with Eaton Vance's other mostly fixed-income CEFs like (EFF), (EFT), (EFR) and (EVV). However, ETG is really much more comparable to (EVT) and especially the Eaton Vance Tax-Advantaged Global Dividend Opportunities fund (ETO), $25.00 market price (real time), $24.58 NAV, 1.7% premium, 8.6% current market yield, two leveraged equity/preferred share CEFs that trade at higher valuations than ETG.

Though Eaton Vance likes to put ETG in the Taxable fund category along with other fixed-income funds and not the Managed-Distribution category, where Eaton Vance's equity based CEFs reside, including EVT and ETO. From a practical standpoint, there really is no difference now.

That's not to say it was always like that. But at some point, ETG morphed into a much larger version of ETO. How similar are they now? Here's Eaton Vance's Quick Reference Guide for its three equity dividend income funds and you try and tell me if there is really any difference between ETO and ETG.

In fact, if you go to each fund's latest Annual Report, their holdings and weightings are extremely similar. Here is ETG's:

And here is ETO's:

So the question is why would these funds trade at such a wide valuation discrepancy with ETG at a -8.0% market price discount while ETO is at a 1.7% market price premium? Their current yields aren't that much different.

Well, the reason may have to do with reason No, 2, because on a longer term basis, like from inception, ETO's NAV has crushed ETG's NAV. Here's a running quarterly total return of each fund's NAV from mid 2005 when I started keeping track of data for both funds, though there's really no relevance to this start date as both fund's inception dates were a year earlier in 2004.

Note: Green quarterly periods means the broader markets were positive while red means down periods for the broader markets. The 2008 financial crisis is shown in the six consecutive quarters shown in red.

Here you can see that over this roughly 13-year period, ETO's NAV is up 103% compared to ETG's NAV up 60.6%. That's a pretty big difference.

I don't profess to know what ETG's portfolio managers were doing differently back than that caused its NAV to lag so badly behind ETO's. But as some point it seems, the portfolio managers (who happened to manage both funds) decided to just go with the more successful strategy, that being ETO's and re-structured ETG's as such.

I have no evidence of this and there were no investment policy changes or updates that would account for this. But when you look at the more recent NAV performances, you have to come to the conclusion that ETG is now just a more larger version of ETO.

Taking the table above, it's easy to truncate and compare seven-year NAV performances, five-year, three-year and then one-year.

7-year

5-year

3-year

1-year

Here we can see that ETG has actually outperformed ETO at NAV in three of the four period tables above. And so far this year, ETG's NAV is outperforming ETO's as well slightly. Again, these are total return NAV performances with all distributions added back but not on a reinvested basis.

So why isn't ETG getting any credit? These are big valuation differences between the two funds. If ETG traded at the same valuation as ETO, which it should based on these NAV performances, ETG's market price would go from $16.90 to $18.70, almost $2 higher.

And now we come to reason three. Somehow, ETG's NAV (XETGX) was shown closed down -$2.17 yesterday to $16.19 by some data provider that obviously got it wrong. Here is the Wall Street Journal closing price yesterday for XETGX.

However, Eaton Vance's own website showed XETGX up $0.03 yesterday, not down -11.8%.

Is this a conspiracy? This is not the first time I have seen this happen with this data source and I even made note of it back in early February with this article, Fake News On EXG & ETY. Sell The Bounce.

The problem is that this is picked up by many financial news sources and investors react to them. With ETG down -0.5% at $16.90 (real time) while all the other Eaton Vance equity CEFs are strongly up, I think this is another table pounding buying opportunity for the most misunderstood Eaton Vance CEF.

Oh, and one more added bonus for ETG? Because of its accumulated losses in years past, which are due to expire in October, its distributions are heavily made up of return of capital, which is actually a bonus for investors since ROC is not taxable though you would have to lower your cost basis by the ROC amount. So in essence, the ROC tax on the distribution is deferred until you sell the fund.

Analyst’s Disclosure: I am/we are long ETG. 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.