Short-Term Swing Trading Opportunity in ETW?

Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ticker:ETW) is a covered call global equity closed end fund with about $1.4 Billion in assets under management. The primary objective of the fund is to provide current income and gains, with a secondary objective of capital appreciation. The fund’s investment strategy consists primarily of owning a diversified portfolio of global common stocks, and then:

–         Selling short term call options on broad-based domestic stock indices on at least 80% of the value of the US stocks in the portfolio. 

–         Selling short term call options on broad-based foreign country and/or regional stock indices on at least 80% of the value of the international stocks in the portfolio.

In the first few years of its existence from 2005 through 2009, the fund used a high managed distribution plan where they paid out $0.45 per quarter. But the NAV was gradually falling over time. ETW is not a leveraged fund and relied on return of capital distributions as needed.

The quarterly distribution was lowered to $0.39 in March 2010.

Just recently, on December 14, 2010, ETW announced another distribution cut to $0.3024 per quarter. The portfolio management team believes this will strike a better balance in total return between distributions and capital appreciation.

But many closed-end fund investors who buy income funds do not like distribution cuts regardless of the “logic” behind them. On December 15, 2010, the market price of ETW fell 4.8% even though the NAV dropped only 0.8% on that same day.

There is likely a good short-term tactical trading opportunity in ETW right now. Since November 30, the NAV has been up 4.1%, while the market price has dropped 2.7%. The discount to NAV as of December 17 is -9.50% which is the largest discount in the last 52 weeks. The 52 week discount Z-score is -2.89, which means that the discount to NAV is nearly three standard deviations below the average discount over the last year.

The portfolio is global with the following top five sector breakdown on Sept. 30, 2010:

Information Technology 23.1%
Financials 14.26%
Health Care 11.72%
Consumer Discretionary 11.31%
Industrials 9.86%

The Country allocations as of Sept. 30, 2010 were:

 Country Allocation (%)
 United States   10.37
 Europe   4.55
 United Kingdom   12.05
 Japan   10.41
 Eastern Europe   0.89
 Asia pacific   0.82
 North America ex-US   0.55


Ticker: ETW  Eaton Vance Global Buy-Write Tax Managed Opportunity Fund   pays quarterly

  • Total Assets= 1.4 Billion
  • Annual Distribution (Market) Rate= 9.92%    Income Only Yield= 1.57%
  • Fund Expense ratio= 1.09%              Discount to NAV= -9.50%
  • Portfolio Turnover rate= 31%
  • No leverage used

The top ten holdings on Sept. 30 were:

 Stock Allocation (%)
 Apple   5.39
 Nestle SA   1.84
 Microsoft   1.75
 Google   1.46
 Qualcomm   1.40
 Oracle   1.19
 Exxon Mobil   1.17
Cisco 1.10
Novartis 1.08
Banco Santander 1.05

Full Disclosure: Long ETW.


2 responses to “Short-Term Swing Trading Opportunity in ETW?

  1. You can’t just look at Z-scores without the overall context. The market has just run up 20-30% since Aug. Maybe the discount is abnormally high b/c there is now greater risk in holding these securities than in the prior 52 weeks.

  2. I find it very pleasant to find someone who knows what he is talking about when it comes to CEFs. Keep up the good work.

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