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ETJ - 8.5% Yield, Well-Contained Risk

Binary Tree Analytics profile picture
Binary Tree Analytics


  • ETJ is a closed end fund that has current income as a primary objective.
  • The fund employs an options collar strategy to extract yield from equities' upside and to protect the downside during market sell-off scenarios.
  • The fund had a maximum drawdown of only -10% during the stomach-churning COVID sell-off in 2020 versus -20% for the S&P 500 (on a monthly measurement basis).

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Eaton Vance Risk-Managed Diversified Equity Income Fund (NYSE:ETJ) is a closed end fund that has current income as a primary objective. The Fund invests in a portfolio of common stocks and purchases out-of-the-money, short-dated S&P 500

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Binary Tree Analytics profile picture
With a financial services cash and derivatives trading background, Binary Tree Analytics aims to provide transparency and analytics in respect to capital markets instruments and trades.We are reachable at BinaryTreeAnalytics@gmail.com_____________________________http://www.BinaryTreeAnalytics.com

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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 (19)

Downside protection? This fund is my worst loser, so far. I am thinking I will have to cut my losses, I mean “downside protection”.
niceguy_77477 profile picture
The YTD and 6-month returns are negative and terrible at this moment. How in the world this fund protected my investment?
@niceguy_77477 seriously! I couldn’t agree more. I bought in on “downside protection”. Well, I am down 9%. ☹️
Thank you for this:

"With a tightening cycle set to characterize 2022, and a hawkish Fed we are mindful of a reversion to historical patterns, namely for ETJ to trade below NAV. In our mind this is not the best entry point although the fund is very robust on analytics and risk/reward metrics long term."

That helped me decide not to buy this fund. Looking for good dividend am going to buy some xyld, any ideas for this interest rate increasing environment?
There are many things about this fund that I like. Although I don't currently own it, I would like to start a position. However, when I look at the NAV chart since inception, I get concerned. Should I be? Looking from 2008 to today, the trend NAV trend is down. Generally, I would not invest in any CEF with this kind of NAV trend. What am I missing?
AnthonyGiordano profile picture
@RetiredinIndy You asked the exact same question I was thinking. I own 12+ CEFs and usually tend to look at the NAV line first. I don't mind a flat line, especially since the GFC ('07-'09) but deteriorating NAVs do concern me. I am retiring in several years and growing allocations in CEFs I am comfortable with in which I consider more "quality". ETJ has a compelling downside protection while getting paid a nice distribution but I am wondering if just owning hedges such as treasuries, I-bonds, munis, etc may be the more rational option, albeit not getting the yield on that allocated money.
@AnthonyGiordano I do exactly as you....start with the NAV trend from 2008 forward. I have been retired for 7 years and currently have 27 CEFs, a mix of higher yielding ETFs and a few mutual funds. For CEFs, I prefer either no leverage or low leverage (under 20%) and, hardly ever buy at a premium...another problem I currently have with ETJ (although it is not too bad). Several authors that I have learned to trust have touted this fund...which has me scratching my head. I think I will keep with my proven success and stay away...taking it off my watch list.
AnthonyGiordano profile picture
@RetiredinIndy Totally agree and doing the same. Best of luck to you.
ETJ gives a conservative look to a high dividend portfolio. When it market tanks,it will drop less than most
Long ETJ...thanks for the article.
adam22164 profile picture
To add a bit of downside protection to my portfolio, I own ETJ, CPZ, & HEQ. All help to mitigate portfolio drawdowns to some extent, but don't be surprised when there are days that they all get hammered just like non hedged funds when everything and the kitchen sink is being sold. That being said, these types of funds do serve a purpose in a balanced portfolio. Also of note, due to options premiums being tax classified as "Return of Capital" (tax-deferred, non dividend distributions), ETJ and to a lesser extent the other CEF's I mentioned, is about 90% ROC, which is non-destructive ROC in my opinion.
Think. Focus. Health. Wealth profile picture
@adam22164 re etj roc, ideal for taxable accounts which defers tax implications on the @90% roc until one sells or it reaches cost basis. ideal for those who want income flow but to keep their taxable income levels low
farmed out profile picture
One way to add income to your portfolio is to add these income producers such as ETJ. High yield funds or stocks are often not something we would want to dominate our portfolio as we want growth stocks to fuel capital appreciation.

I like to diversify across different investments for this income, so I have BDCs like ARCC, a food company like BGS, a mortgage REIT like AGNC, a miner like RIO, others such as BANX, ENB, OKE, HIX, AGNCM (preferred), UTG, and of course ETJ. This ramps up yield and spreads risks across sectors. It works for me.
knobby profile picture
I bought ETJ in January of 2017 and added to it in December of 2018. Dividend has remained the same for those 5 years. This is one of my longest held CEF's. First purchase was at $7.38 and second at $6.45 so have some long term capital gains also. Wish all my CEF's performed this well. Rarely see any articles regarding it. Thank you.
rickevantodd profile picture
Very good article. I was quite surprised to see the extent of the draw down in ETJ yesterday given the long puts, per your table, are only1.6% out of the money. Long ETJ.
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