ETG: Totally Coated 7.07% Yield And An Engaging Entry Value (NYSE:ETG)

The Eaton Vance Tax-Advantaged World Dividend Revenue Fund (NYSE:ETG) is a closed-end fund, or CEF, that may be employed by traders who wish to earn a excessive degree of revenue from the property of their portfolios with out sacrificing the upside potential that comes with investing in widespread equities. The truth that this fund invests its property internationally might give it a marked benefit over a pure home inventory fund by way of income-generating means resulting from the truth that worldwide markets have lengthy had increased dividend yields than america.

Sadly, this fund’s yield will not be particularly excessive proper now, because it solely yields 7.07% on the present worth. That is considerably decrease than most fixed-income funds yield, and it’s decrease than even different widespread fairness funds. For instance, the LMP Capital and Revenue Fund Inc (SCD) presently yields 10.05% and invests in widespread equities identical to the Eaton Vance Tax-Advantaged World Dividend Revenue Fund. As such, this fund may not be as interesting to income-focused traders as another funds. The truth that it may possibly assist enhance an investor’s international publicity may very well be useful although, as most American traders have substantial publicity to america and inadequate international publicity.

As common readers could recall, we final discussed this fund again in September. That was clearly a really totally different market atmosphere than at the moment’s. In September, traders have been usually a bit down on the Federal Reserve’s “higher for longer” mantra and have been promoting off each shares and bonds. In the course of the interval, yields have been rising, and shares have been accepting a lot decrease valuations than now we have seen throughout earlier durations. Right this moment, now we have precisely the other market atmosphere as traders are giddy in regards to the prospect of rate of interest cuts subsequent 12 months and are bidding up asset costs in an try to front-run the Federal Reserve. We are able to subsequently anticipate that this fund could have skilled some positive aspects for the reason that final time that we mentioned it. That’s certainly the case, as shares of the Eaton Vance Tax-Advantaged World Dividend Revenue Fund are up 4.81% since September 15, 2023:

Sadly, we are able to see that the worth efficiency of this fund has been worse than that of the S&P 500 Index (SP500) and the iShares MSCI World ETF (URTH). It solely very barely underperformed the MSCI World Index, although. That’s not particularly shocking, for the reason that MSCI World Index has been persistently underperforming American property over many of the previous decade. We are going to see that later on this article.

As is the case with most closed-end funds, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund delivers an outsized proportion of its complete returns by means of direct funds made to the shareholders. As such, the worth efficiency can provide a considerably inaccurate view of the particular efficiency that traders within the fund skilled. With the intention to appropriate this drawback, we have to embody the distributions that traders obtained within the return evaluation. After we do this, we see that this fund handily outperformed each the S&P 500 Index and the MSCI World Index over the previous three months:

That is one thing that would definitely show to be interesting to potential traders. Nevertheless, you will need to at all times remember the fact that the previous efficiency of a fund is not any assure of future outcomes. Thus, allow us to take a more in-depth have a look at this fund and see if a purchase order might make sense at the moment.

About The Fund

In keeping with the fund’s website, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund has the first goal of offering its traders with a excessive degree of after-tax complete return. This is sensible once we contemplate the fund’s identify. The presence of the phrase “dividend” within the fund’s identify strongly means that this fund will try to realize its funding goals by proudly owning widespread equities and related securities. CEF Join confirms this, because it states that 84.99% of the fund’s property are presently invested in widespread equities. It additionally says that the fund has a lot smaller weightings to most popular shares, bonds, and different issues:

After we contemplate this, we notice that the pursuit of complete return makes quite a lot of sense. It’s because widespread equities are by their very nature a complete return automobile. In spite of everything, traders usually buy widespread equities as a way to obtain an revenue by means of dividends paid by these securities in addition to profit from the capital positive aspects that sometimes accompany the expansion and prosperity of the issuing firm. The rest of the securities on this portfolio primarily ship their funding returns to their homeowners through direct funds. In spite of everything, most popular inventory and bonds don’t have any web capital positive aspects over their lifetimes. Thus, the fund additionally invests in income-producing securities however as revenue is a part of complete return, the general goal nonetheless works.

Because the identify of the fund suggests, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund invests in securities from issuers all around the world. It claims to have a choice for investing in dividend-paying securities. Particularly, the fund’s fact sheet states in its first bullet level that:

The Fund invests primarily in international dividend-paying widespread and most popular shares and seeks to distribute a excessive degree of dividend revenue that qualifies for favorable federal revenue tax therapy.

The very fact sheet then goes on to say that the fund favors worth shares:

The Fund employs a price funding model and seeks to put money into dividend-paying widespread shares which have the potential for significant dividend progress.

Nevertheless, as is the case with many Eaton Vance funds, there are a number of shares occupying pretty massive weightings within the fund that don’t meet these two {qualifications}. Listed below are the biggest positions within the fund:

Microsoft Company (MSFT), Alphabet Inc. (GOOG), (GOOGL) Amazon.com, Inc. (AMZN), and Apple Inc. (AAPL) usually are not dividend-paying worth shares. Certainly, Alphabet and Amazon.com don’t even pay dividends. Microsoft and Apple have such meager yields that they might as effectively not pay a dividend in any respect. They aren’t the one firms on this listing that don’t actually make sense as dividend performs, both. Listed below are the dividend yields of all ten of those firms:

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As of the time of writing, the S&P 500 Index yields 1.42%. The one shares on this listing that beat that yield are Nestle SA, ConocoPhillips, and EOG Assets. Thus, if the fund have been actually pursuing a price investing technique primarily based on investing in dividend-paying widespread equities, then it’s failing horribly. The vast majority of the shares on this listing wouldn’t be included in a portfolio following such a method.

With that mentioned, the fund states that it’s benchmarking itself in opposition to the MSCI World Index. If we contemplate this, then the fund’s holdings do make extra sense, as fairly a number of of those shares do have pretty massive weightings in that index:

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Arguably, the fund is a little more value-oriented than the index. We are able to see that the foremost expertise firms on this listing even have a decrease weighting within the fund than they do within the index, aside from Amazon.com and Alphabet. Nevertheless, we don’t see different expertise firms that account for big weightings within the index. For instance, we don’t see Meta Platforms, Inc. (META) or NVIDIA Company (NVDA) among the many fund’s largest holdings in any respect regardless of these two firms being among the many largest constituents of the index.

As I identified in a recent article, an outsized proportion of the overall returns of each the S&P 500 Index and the MSCI World Index over the previous decade has been resulting from a really small handful of expertise shares. Apple, Microsoft, Amazon.com, and Alphabet are all amongst that small handful of shares. Thus, it’s fairly attainable that the fund consists of them on this portfolio as a way to be certain that its efficiency doesn’t path the broader market indices by an excessive amount of. In spite of everything, it isn’t precisely a secret {that a} worth investing technique has underperformed the market ever for the reason that Federal Reserve began quantitative easing following the Nice Recession in 2009. There could also be some traders that keep away from a fund that underperforms the market by an excessive amount of, despite the fact that it might be operating a method that they like, so the fund’s managers could really feel that they’ve to incorporate these firms within the fund. This isn’t precisely a perfect state of affairs, however the market has exhibited very odd behaviors for many of the previous fifteen years, so it’s most likely higher to simply waft reasonably than attempt to battle the dynamics.

One factor that we instantly discover by wanting on the fund’s largest holdings is {that a} very excessive proportion of them are expertise firms. In reality, six of the ten firms are expertise corporations. This might lead somebody to instantly conclude {that a} excessive proportion of the fund’s property are invested on this sector. Nevertheless, that isn’t precisely the case. In reality, solely 20.18% of the fund’s property are invested within the Data Know-how sector. That’s lower than the load of this sector within the MSCI World Index:

In reality, we are able to see that the one sectors which might be chubby relative to the index are Financials and Industrials. This truly works fairly effectively with the fund’s acknowledged deal with investing in dividend-paying worth shares. In spite of everything, most Industrial sector firms are worth shares that pay out bigger dividends than the typical firm. The Financials sector has lengthy been generally known as a wealthy supply of dividend revenue. Thus, any fund that’s targeted on dividend-paying worth shares will most likely chubby these sectors on the expense of the extraordinarily low-yielding Data Know-how sector. That is precisely what we see right here. Thus, the fund’s present allocation does make a specific amount of sense, though it would make sense to scale back the expertise publicity a bit extra to spice up Vitality as some power sectors (particularly shale firms) have very sturdy money flows and excessive dividend yields. We discussed one among these firms in Vitality Earnings in Dividends earlier at the moment.

One factor that eagle-eyed traders will doubtless discover is that fairly a number of of the businesses that represent the biggest holdings on this fund have modified for the reason that final time that we mentioned it. Particularly, we see that The Coca-Cola Firm (KO) and GXO Logistics, Inc. (GXO) have each been faraway from the biggest positions within the fund. Of their place, now we have CDW Corp. and EOG Assets. As well as, we see that the weightings of a number of of the shares on the biggest positions listing have modified. This latter change might have been attributable to one firm outperforming one other available in the market, although, and isn’t essentially an indication that the fund’s administration actively tried to make a change to the portfolio.

We are able to clearly see that the fund is partaking in a specific amount of buying and selling exercise. This conclusion is strengthened by the truth that the fund has a 59.00% annual turnover. This isn’t an excessively excessive annual turnover for an actively managed fairness closed-end fund, however it’s nonetheless a lot increased than an index fund may possess. That is necessary as a result of it prices cash to commerce shares or different property. This buying and selling exercise prices cash, which ends up in a drag on the fund’s efficiency. In spite of everything, the fund’s administration must generate ample returns to cowl these further bills and nonetheless fulfill the traders. There are only a few administration groups that obtain this aim on a constant foundation, so that is one cause why many funds underperform their benchmark indices.

Sadly, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund is not any exception to this underperformance rule. Over the previous ten years, the fund’s complete return was 114.40% once we included the impression of the fund’s distributions on its returns. This was a worse efficiency than each the S&P 500 Index and the MSCI World Index managed to ship over the identical interval:

Thus, traders who’re dedicated to reaching the best attainable complete return could wish to eschew this fund in favor of simply shopping for the indices. Nevertheless, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund does have the next yield than both of the indices so traders who want the next degree of revenue could choose to buy this fund despite the fact that it has traditionally produced decrease returns.

Leverage

As is the case with most closed-end funds, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund employs leverage as a technique of boosting the overall return of its portfolio. I defined how this works in my earlier article on this fund:

In brief, the fund is borrowing cash after which utilizing that borrowed cash to buy home and international widespread and most popular shares. So long as the bought property can present the next complete return than the rate of interest that the fund has to pay on the borrowed funds, the technique works fairly effectively to spice up the efficient yield of the portfolio. Since this fund is able to borrowing cash at institutional charges, that are significantly decrease than retail charges, that may often be the case.

Nevertheless, the usage of debt on this trend is a double-edged sword. It’s because leverage boosts each positive aspects and losses. As such, we wish to be certain that the fund doesn’t make use of an excessive amount of leverage since that might expose us to an excessive amount of threat. I don’t often wish to see a fund’s leverage exceed a 3rd as a proportion of its property because of this.

As of the time of writing, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund has leveraged property comprising 20.05% of the fund’s complete property. That is clearly effectively beneath the one-third of property most that we might sometimes desire. The fund’s present leverage can be considerably lower than the 20.97% that it had the final time that we mentioned it. It is a optimistic signal, and it’s attributable to the truth that the fund’s web asset worth per share has elevated since September 15, 2023 (the date of the earlier article’s publication):

As we are able to clearly see, the fund’s web asset worth per share is up 5.70% for the reason that final time that we mentioned it. This naturally signifies that the fund’s leverage represents a smaller proportion of the portfolio assuming that the fund didn’t borrow any extra money. In spite of everything, the overall portfolio is now bigger than it was the final time that we mentioned it.

Total, there is no such thing as a actual cause to fret in regards to the fund’s leverage at the moment. The present degree represents an affordable steadiness between threat and reward.

Distribution Evaluation

As talked about earlier on this article, the first goal of the Eaton Vance Tax-Advantaged World Dividend Revenue Fund is to offer its traders with a excessive degree of complete return. In pursuance of this goal, it purchases shares from issuers which might be positioned all around the world. Even if lots of its largest positions have pretty low dividend yields, it does appear that the fund’s managers desire to put money into dividend-paying securities reasonably than ones that don’t pay dividends. The fund collects these dividends and combines them with any capital positive aspects that it manages to understand from the sale of appreciated widespread shares. The fund additionally employs leverage to permit it to regulate extra securities than it might with simply its personal fairness, which ought to usually increase each the dividend revenue and the capital positive aspects that it is ready to notice. The fund then pays all of this cash out to the shareholders, web of its bills. After we contemplate how massive realized capital positive aspects might be, we might most likely anticipate that this technique will permit this fund’s shares to boast a really excessive distribution yield.

That’s definitely the case, because the Eaton Vance Tax-Advantaged World Dividend Revenue Fund pays a month-to-month distribution of $0.1001 per share ($1.2012 per share yearly), which provides it a 7.07% yield on the present worth. As acknowledged earlier, this can be a considerably increased yield than many of the predominant widespread fairness indices possess, but it surely can not actually compete with the perfect fixed-income funds proper now. For essentially the most half, the fund has been in line with its distribution through the years but it surely has definitely not been good:

As we are able to see, the fund did increase its distribution throughout the post-pandemic bubble when there was an unlimited sum of money sloshing by means of the economic system, and the worth of every little thing was surging. The fund needed to minimize its distribution as soon as the Federal Reserve began elevating charges and tightening financial coverage, although. That is sensible, as most issues handed losses to traders in 2022 so it’s only prudent that the fund minimize its distribution as a way to protect the online asset worth. The fund’s present distribution is a bit lower than the $0.1025 per share that it had previous to the pandemic so the present degree is the bottom degree that the fund has had in over a decade. Nevertheless, we are able to nonetheless see that it was fairly in line with respect to the distribution within the years following the Nice Recession. Thus, these traders who’re in search of a secure supply of revenue that can be utilized to pay their payments or finance their existence could also be fairly glad.

As a number of individuals have commented in different latest articles, the present inflation plaguing the economic system has lowered the buying energy of the distributions of any fund that pays a static distribution. This implies that we wish to focus our purchasing consideration on these closed-end funds which have persistently grown their distributions over time. Nevertheless, the one funds which have executed that over the previous three or 4 years are those that make investments closely in floating-rate debt securities. Thus, the best choice is to make use of among the distribution to buy extra shares of the fund, as that might end in a gentle improve within the distribution that you just obtain.

As I’ve identified in quite a few earlier articles, the fund’s historical past will not be essentially an important factor for anybody who’s contemplating buying shares of the fund at the moment. It’s because a purchaser at the moment would obtain the present distribution on the present yield. This particular person won’t be adversely affected by any motion that the fund has taken previously. As such, allow us to take a look on the fund’s funds and see how effectively it may possibly maintain its present payout.

Fortuitously, now we have a really latest doc that we are able to seek the advice of for the aim of our evaluation. As of the time of writing, the fund’s most up-to-date financial report corresponds to the full-year interval that ended on October 31, 2023. It is a rather more latest report than the one which we had out there to us the final time that we mentioned this fund. That is fairly good, because it ought to cowl the interval of market weak point that occurred over the summer season of 2023. This era noticed the worth of commonest shares world wide decline because the market started to simply accept the Federal Reserve’s stance that rates of interest wouldn’t be dropping again to bubble ranges anytime quickly. The fund most likely took some losses throughout that point interval. This report ought to give us an concept of the magnitude of those losses, in distinction to the semi-annual report which was the latest report that was out there the final time that we mentioned this fund.

In the course of the full-year interval, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund obtained $70,037,393 in dividends and $10,382,221 in curiosity from the property in its portfolio. After we mix this with a small quantity of revenue that was obtained from different sources, the fund had a complete funding revenue of $100,128,743 throughout the interval. The fund paid its bills out of this quantity, which left it with $63,825,641 out there for shareholders. This was sadly not sufficient to cowl the distributions that the fund paid out throughout the interval. Over the full-year interval, the fund paid distributions totaling $91,842,498 so it distributed greater than its web funding revenue. At first look, this may be regarding because the fund will not be producing ample funding revenue to cowl all the payouts which might be being made to its shareholders.

Nevertheless, there are different strategies by means of which a fund can acquire the cash that it requires to cowl the distribution. For instance, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund invests primarily in widespread shares and these property ship a major proportion of their complete returns within the type of capital positive aspects. The fund may be capable to notice some capital positive aspects in a pleasant market and distribute these to the shareholders. Realized capital positive aspects usually are not thought of to be funding revenue for accounting or tax functions however they clearly symbolize cash coming into the fund that may be paid out to the shareholders. The fund fortuitously had some success on this space over the full-year interval. It reported web realized positive aspects of $26,449,417 and had one other $61,866,264 web unrealized positive aspects.

Total, the fund’s web property elevated by $60,298,824 after accounting for all inflows and outflows throughout the interval. It is a very optimistic signal, because it signifies that the fund did handle to completely cowl its distributions over the interval. If the market continues to ship a efficiency that’s just like what now we have seen over the past 12 months, we must always not have to fret in regards to the fund’s means to maintain its distributions.

Valuation

As of December 20, 2023 (the newest date for which information is presently out there), the Eaton Vance Tax-Advantaged World Dividend Revenue Fund has a web asset worth of $19.30 per share. Nevertheless, the shares solely commerce for $17.08 every. This provides the fund’s shares an 11.50% low cost on web asset worth. That is consistent with the 11.22% low cost that the fund’s shares have averaged over the previous month. Thus, the present worth seems to be like an affordable entry level if you happen to want to add this fund to your portfolio.

Conclusion

In conclusion, the Eaton Vance Tax-Advantaged World Dividend Revenue Fund seems to be like an affordable method for an investor to acquire a excessive degree of revenue with out sacrificing the upside potential of investing in widespread shares. The fund’s present yield is sadly a bit decrease than that of many different closed-end funds, but it surely does seem that it may possibly maintain the payout and it trades at an unlimited low cost on the web asset worth.

Sadly, Eaton Vance Tax-Advantaged World Dividend Revenue Fund has a historical past of underperforming each the S&P 500 Index and the MSCI World Index, so evidently anybody who needs this fund might want to sacrifice a little bit of return as a way to acquire the next degree of revenue.