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EXG - Mediocre Performance, Terrible Price

Maks F. S. profile picture
Maks F. S.


  • EXG is a closed-end fund sponsored by Eaton Vance, seeking current income and capital appreciation through investment in global common stocks and through utilizing an options strategy.
  • The fund is trading at a discount of 1.6% to its net asset value and distributing a market distribution of 9.97% (as of March 7, 2018).
  • In-depth discussion on the fund and how it differs from its ETF competition.

The covered call strategy is one of my favorite investment strategies and one which I personally use for both client and personal money.

Through a proper "covered call" strategy, investors are able to both reduce the risk of holding an investment while at the same time monetizing that risk and getting paid for it!

I wrote about covered calls and covered call closed-end fund in the article "If You Must, Please Use Protection." Subsequently, we discussed a number of closed-end funds which have been well liked such as the Nuveen S&P 500 Buy-Write Income Fund (BXMX), Nuveen S&P 500 Dynamic Overwrite Fund (SPXX), and the Nuveen NASDAQ 100 Dynamic Overwrite Fund (QQQX) in the articles "BXMX: All The Fun With A Lot Less Risk," "SPXX: The SPY For Income", and "QQQX: Cure For Tech Overload?"

After discussing the index-based covered call funds, we took a deep look at one of the most widely held actively managed covered call closed-end funds, the Eaton Vance Tax-Managed Diversified Equity Income Fund (ETY) in the article "ETY: A Covered Call CEF Cornerstone" (the Income Idea Version can be found here).

What we found was a widely popular fund which unfortunately did not seem to deliver on its premise, especially against the Nuveen index based cover call funds.

ETY has another popular sibling fund, a global equity income version of itself, the Eaton Vance Tax-Managed Global Fund (NYSE:EXG).

Does EXG deliver any alpha? Or does it suffer the same fate? Or are there better alternatives?

Let's find out!

Fund Basics - Essential Info

  • Sponsor: Eaton Vance
  • Managers: Michael A. Allison, Christopher Dyer
  • AUM: $2.795 Billion
  • Historical Style: Global Large Cap
  • Investment Objectives: The fund seeks current income and capital appreciation through investment in global common stocks and through utilizing an options strategy.
  • Number of Holdings: 97

This article was written by

Maks F. S. profile picture
Intrepid Leader at an RIA.  My firm and I simplify the lives of busy clients by providing ongoing financial planning and asset management. this is done by providing our clients customized, ongoing comprehensive financial planning, and customized investment advisory services tailored to the clients' needs. As a fiduciary, we have a legal obligation to put the needs and interests of our clients above our own. Specialties: fee based comprehensive financial planning, retirement planning, life insurance and protection planning.

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

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (43)

I'm with Bluetooth, SBavaria, and dwood. I've been in EXG & ETW for several years, since 2015. With reinvesting the monthly dividend, this returned a consistent gain. Won't argue with the author but it doesn't faze me.
11 Mar. 2018
I own spxx and am thinking of selling it now that it’s gone from a discount to sharp premium in a short period and I don’t understand why?!
Maks F. S. profile picture
I just put out an alert on this.

People are chasing distributions and SPXX has performed exceptionally well. They also just announced a distribution hike!
murray555 profile picture
I bought EXG in November 2016. Nearly 40% in less than 2 years. With a cost basis of $7.83 I’m holding.

Having said that, I wouldn’t buy it today.
keltus 1952 profile picture
Also remember that option premiums tend to rise when interest rates rise. A plus for buy / write CEFs.
berloe profile picture
ETV and CII anyone?
10 Mar. 2018
You talk about EXG's nav vs price point then compare it to SPXX price while ignoring it's nav which its trading a premium. This is a lot of the reason for that out performance, which will turn into the opposite as a reversion to the mean and under perform. You're comparing two different securities (apples to oranges), then compare completely different metrics. This article's value is as inflated as SPXX's.
Thanks for the article - I own both ETY and EXG, the latter for a longer time. I would agree a mediocre investment and I’ve struggled with the distribution as I know it’s probably a little too high compared to option and dividends received. Can’t say I mind the monthly cash flow however or the very limited tax hit
Chester the Income Investor profile picture
Added to my position after reading :)
cpo111 profile picture
I finally did my own taxes in 2013 (when I retired) and was surprised at the high % of the monthly distribution that was not taxable. Since I am living on my taxable account, not my SS or IRAs, this is very important. No wonder my former CPA suggested that I keep my position. Last year 92% of the return was not taxed. In my book, this is not stressed enough in any of the articles on SA. You touched on this subject but stopped short of giving actual after tax returns, which makes it one of the best taxable returns available. Very few knowledgeable investors would put a "tax advantaged" fund in an IRA. 92% !!!!!

Just my opinion.
Faithful Steward Investing profile picture
cpo ~ good to know! Thanks for sharing.
$$$ and sense profile picture
"Very few knowledgeable investors would put a "tax advantaged" fund in an IRA. 92% !!!!!" -- Thx CPO111 for the comment. I agree with you that the tax advantage of owning some of these funds is overlooked too much. At the end of the day, when the sun is setting on another year, doing taxes is a bit less painful when you hold these funds. But let me say that sometimes these analysts carve the turkey so thin you really are not left with much of a turkey at all. Some SA folks put these funds under so many microscopes that eventually it all becomes useless noise. I look at just a few things before I buy a fund ... 1. Its yield, 2. its prior performance, 3. Its discount/premium against NAV, 4. Its current price against historical pricing 5. Leverage used, 6. Its inception date, 7. Mgr. tenure, 8. distribution frequency (monthly, quarterly, etc.), 9. income source and 10. Its sponsor. All these things are readily available and you don't need a PHD in astrophysics to decipher it all. Also, If I like the fund enough, I have no apprehension in putting it into one of my IRAs. IRAs, after all, are already tax advantaged so ... it becomes a moot point.
NV_GARY profile picture
When you reach RMD time and withdraw from the IRA, you will pay your regular (max at the time) tax rate. So, it can hurt more then.
But- I do the same since I'm not too worried & nearly all of my portfolio is IRA & ROTH- but trying to build the taxable with my RMD stocks that I move in-kind each year.
"Over the last 10 years, the fund achieved a Sharpe Ratio of just .404. This implies that it only earned .404% in excess of the risk-free rate, which isn't impressive."

No, the Sharpe Ratio is "the average return earned in excess of the risk-free rate per unit of volatility or total risk" (Investopedia). This is a basic concept in finance.
NV_GARY profile picture
maks & vivek

Also- the Sharpe ratio uses standard deviation as the denominator- which given the .404, means that deviation is pretty high since the difference between the distribution yld and that of the risk free is pretty large.
Even ETY's is .536- so not so great either. Options can throw a wrench into Sharpe results too- so not sure it means all that much.
Think. Focus. Health. Wealth profile picture
@Maks- RE your third bullet "In-depth discussion on the fund"...
Maks I would venture to say most folks buying HY double digit yielding CEF's are buying for Income flow to either be spent or reinvest at least a portion vs a going in TR goal.
How can you state an "in-depth discussion" without at least looking at "income" generated with and without dividends reinvested... everyone of your charts focuses on TR or price chg % etc
>>Folks do yourself a favor and know your going in goal for HY CEF's, Income flow or TR.

If one chooses Income, then take a look at how EXG has done over time with div reinvested and the resulting share count today X current monthly or annual dividend and see how the income has grown....pls notice no where did I state that price chg is a factor in calculating growing income flow.
In addition, look at how well EXG has performed despite a dividend cut (or as I call a course correction; yet still yielding @ 10%) @ Feb 2017 which the author did not even mention in his "in-depth discussion".
Faithful Steward Investing profile picture
Interesting comparison -- thanks for your analysis. The difficult part of deciding which fund to be invested in is that it doesn't look the same when you're in the throes of the market movements. Looking back at how these funds fared against each other long term is eye-opening. But one has to wonder how someone invested in SPXX might have felt about their investment if they'd invested in 2013 and watched EXG move out ahead of it for a couple years, perhaps even deciding to ditch SPXX in favor of EXG at that point.

I agree with other commenters here that sometimes you pick a fund to play a specific role in your overall portfolio, and stick with it as long as it's working. EXG's 12-month Return on NAV is 3 percentage points higher than its 12-month Yield on NAV, which is a good sign that it's earning its distribution. I'm curious -- do you feel it's not earning its distribution because the earnings are lower than its payout? I understand your concerns about ROC, but I'd like to hear more about how you arrive at your conclusion.

Always appreciate your insights.
Ted's Cat profile picture
Are you comparing EXG (a global fund) to ETY (domestic fund) and other SP 500 investments? Well, if you like comparing apples to oranges, at least you are in the same fruit basket.

Long EXG for nearly 3yr with a TR 28%. Yes, I could have done better, but I misplaced my crystal ball. Meanwhile, YTD the MSCI is up 1.09% vs. S&P 0% so going forward ???
NV_GARY profile picture
"The fund is obviously not earning 10% and the difference between what it earns and what it pays is simply returning your money."
Huh- as opposed to the others? Which of those mentioned are truly 'earning' their distribution? Not any per cefdata.com
Not to defend EXG- they are earning only 11.45%, but the others max out around 23%- the rest of their earnings are ROC and short/long term cap gains.
Also- going back 5-10 years on charts of the majority of CEFs is going to look pretty sick- 2008 messed them-up. I like to look at recent 1-3 yrs- is NAV & price sloping upward? If so, I can give them a break. EXG opened in Feb '07- not a great year to start.
thanks for the review-
Maks F. S. profile picture
Thanks everyone for reading, likes, follows and comments!
Please "follow" me here on Seeking Alpha by clicking the orange "Follow" button if you have not done so already. Not only will you stay up to date with my work, but it also helps me as an author under the new system where new follows are taken into account by Seeking Alpha.

Also, if you would like to preview the Distribution Quality section I do for Income Idea subscribers, you can download it here... http://bit.ly/2oWQQaK
Great article. It's interesting how many people seem to be more fond of 'cheerleading' articles than ones that tell the unvarnished truth.
I would be very interested in knowing what you meant about the 10% distributions not being earnings or dividends, but rather return of capital. If they are partially return of capital that portion wouldn't be taxable, I presume.
Yes, read the quarterly statements as they break down payments by ord income, return of capital, etc. ours is almost exclusively the latter. My tax accountant likes that :)
keltus 1952 profile picture
Don't bother with the monthly statements that show ROC. etc. The one you get with your 1099 the following Feb. or March are the numbers that matter for tax purposes.
keltus 1952 profile picture
Holding sibling ETJ for a few years. Am happy with it as a piece of my pie. None of the Eaton Vance Buy / Write CEFs are leveraged.
Thanks for the article - several comments. 1. EXG is a CEF and not an ETF. 2. Overall, I am up 27% in capital appreciation since I bought the fund and since for me it is at a premium to my cost - I take the proceeds as cash & purchase other positions that are opportune. 3. One of the EXG strengths in a taxable account is that 85% of the distributions are recorded as ROC. On the annual 1099 that shows up in box 3 as a "non-dividend dividend" - no tax but a reduction in your cost basis. If you examine the NAV for this fund - it has been steady for the last several years on the CEF Connect site when displaying historical price/NAV. So with the tax concept of return of capital and no deterioration in NAV, a very strong performer.

Understand not all may be looking for these exact features, but for my plan this is an excellent fund combined with a opportune initial purchase price. It is performing well and the monthly distribution allows me to conduct monthly portfolio re-balancing.
EXG is one of those fund I never have to watch. 10% is still.10% at the end of the day. Really good article tho.
pmbrandt profile picture
One thing I like about EXG and ETY is the monthly distributions, for cash flow purposes. I see SPXX pays quarterly.
brew3242 profile picture

You compare EXG to ETY and find the latter preferable: "...I see less reason for investing in EXG than ETY as quite frankly the performance has been bad."

You also state: "The major difference is that while ETY focuses on domestic equities, EXG is a global portfolio."

My records indicate I have nothing to complain about in terms of EXG's total return (a 9%+ yield plus [admittedly] a small unrealized cap gain).

If I have no other exposure to the global market, and I desire exposure to non-US equities for diversification, what investment would you recommend instead? I've looked, and I haven't found an acceptable substitute.

Until I find such an investment, I'll take the distributions and cry all the way to the bank.
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