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Summary The end of the year will often window dress strong performing funds while others drift lower due to tax-loss selling or simple neglect. Though 2016 may bring more of the same with the strongest stocks and funds continuing their advance, there will still be opportunities to buy and sell from all CEF sponsors. Such is the nature of CEFs to go in and out of favor based on sector exposure but also on nothing more than popularity or seasonality. Instead of my usual table of the best and worst performing equity CEFs for 2015, I’m going to list equity CEFs by the major fund sponsors to make it easier to see and go over. So let’s start with my favorite fund sponsor, Eaton Vance . Eaton Vance has been, by far, the most successful equity CEF sponsor over the last few years though the valuations of their funds have recently gone off in wildly different directions. Here are all of Eaton Vance’s equity CEFs sorted by their total return NAV performances for 2015 through December 30th. Funds in light blue use an option-income strategy and funds in orange use a leveraged strategy. (click to enlarge) Note: Funds highlighted in green have outperformed the S&P 500, up 2.2% including dividends, whereas funds highlighted in red have not Easily the most overpriced fund here is the Eaton Vance Tax-Managed Buy/Write Income fund (NYSE: ETB ) , $16.83 market price, $15.61 NAV, 7.8% premium, 7.8% current market yield . At a whopping 7.8% market price premium despite having one of the worst NAV performances of the group and one of the lowest yields, ETB is at the extreme end of its valuation range. Sure, ETB has historically been a great fund, something that I have pointed out numerous times since 2011 when it traded at a sharp discount. But it’s not going to have near the NAV upside as some of the other Eaton Vance equity CEFs due primarily to its high option coverage. That high option coverage has certainly helped ETB during difficult market periods, especially during 2008. But if you think the broader markets are going to have a more difficult time in 2016, then you really should be owning the Eaton Vance Risk Managed Diversified Equity Income fund (NYSE: ETJ ) , $10.01 market price, $11.23 NAV, -10.9% discount, 11.1% current market yield . ETJ has its faults and it’s typically been my least favorite of the Eaton Vance option funds, but there’s no question that ETJ will provide investors with more downside protection if the markets turn defensive. So why is a premium market price such a bad thing? Well, it’s not if its deserved (which very few funds are). But realize that not only are you paying more than what the portfolio is worth but more importantly you are not getting the yield the fund is actually paying. ETB has to cover its NAV yield of 8.3% to grow its NAV, but a buyer at market price would only get 7.7%. Maybe not a big deal to a small investor but to an institutional investor who may own hundreds of thousands of shares, that’s a big difference. So here in lies the problem. You cannot expect a more sophisticated investor to accept a yield less than what the fund is paying so you should not expect sophisticated investors to establish positions at a premium valuation. So then you are left with investors who buy entirely due to window dressing their existing positions here at year-end or from unsophisticated investors who establish new positions because the fund is in an uptrend or has been highlighted, like ETB was in Barron’s on November 28th. ETB at a $16.90 market price and a $15.65 NAV is wildly overpriced when you could buy other Eaton Vance equity CEFs that have had better NAV total return performances this year and have much higher yields. The Eaton Vance Tax-Managed Global Diversified Equity Income fund (NYSE: EXG ) , $8.81 market price, $9.77 NAV, -9.8% discount, 11.1% current market yield, has been beating ETB at the NAV level all year but for some reason here at year end the market prices have diverged dramatically, perhaps due to window dressing or perhaps due to concerns about the global outlook in 2016. Now has ETB’s NAV crushed EXG’s NAV since their inceptions? Yes, it’s not even close, but that’s all in the past and there are reasons why. First and foremost, EXG is a global option income CEF with a low 47% option coverage whereas ETB is purely US-based stocks with a high 93% option coverage. So when you go through difficult market periods, especially in 2008, ETB’s NAV will hold up far better. Combine that with EXG having the unfortunate timing of going public in 2007 vs. ETB in 2005 as well as EXG having the highest overseas stock exposure of any of the Eaton Vance option funds and that helps explain why ETB’s NAV has held up so much better than EXG’s over the years. Today however, the two funds’ top 10 positions are really not that much different despite EXG’s global footprint. So why would you pay a premium and receive a discounted yield when you could buy a fund at a steep discount and receive a much higher windfall yield? Certainly, EXG has more risk/reward with its low option coverage and a relatively high NAV yield that is more difficult to cover, but I believe that is largely offset by the huge valuation discrepancy between the funds. EXG also is one of the largest CEFs out there at almost $3 billion in assets whereas ETB is one of Eaton Vance’s smallest at only $400 million in assets. The other Eaton Vance option-income CEFs I would be buying are the Enhanced Equity Income II fund (NYSE: EOS ) , $13.70 market price, $14.54 NAV, -5.9% discount, 7.7% current market yield, and the Tax-Managed Dividend Equity Income fund (NYSE: ETY ) , $11.23 market price, $11.95 NAV, -6.0% discount, 9.0% current market yield. I’m neutral on ETV and ETW due to valuations though I recently bought ETW again on weakness between $10.90 to $11.15. I am also now neutral on EOI after the strong move it has made recently and in fact I have sold most of my position (EOI was actually my second largest position though I did not write about it much). In essence, I have swapped EOI and ETB for ETW and EXG and continued to add to positions in EOS and ETY. Of the Eaton Vance leveraged CEFs, my favorite currently is the Tax Advantaged Global Dividend Income fund (NYSE: ETG ) , $15.59 market price, $17.18 NAV, -9.3% discount, 7.9% current market yield , though these funds can go in and out of favor on short notice as well. Leveraged CEFs are generally more volatile than option-income CEFs though I don’t think you can get much better than the Eaton Vance leveraged funds even if the Eaton Vance option-income get all of the attention. The Nuveen Equity CEFs The second most successful equity CEF family over the last few years have been from Nuveen though this is a decidedly mixed bag. Nuveen also has a broad lineup of option-income CEFs and leveraged CEFs even though Nuveen is much more known for its wide selection of fixed-income and muni bond CEFs. Here are Nuveen’s equity based CEFs once again sorted by total return NAV performance for 2015 through December 30th. (click to enlarge) Of this group, the sweet spot is really in the middle. (NASDAQ: QQQX ) and especially (NYSE: BXMX ) have become a bit pricey after the strong moves they have made. QQQX used to be my largest position though I sold most of the position in the fall to add to BXMX when it was down. Now I have sold most of my BXMX after its recent strong move as well. Certainly, both funds have been great this year and I would buy them back on lower valuations. But I think the opportunity in the Nuveen equity CEFs going into 2016 is really in the two index funds, the S&P 500 Dynamic Overwrite fund (NYSE: SPXX ) , $13.41 market price, $14.82 NAV, -9.5% discount, 7.8% current market yield, and the Dow 30 Dynamic Overwrite fund (NYSE: DIAX ) , $14.45 market price, $15.90 NAV, -9.1% discount, 7.4% current market yield . Both SPXX and DIAX represent more value related stock portfolios compared to QQQX and BXMX, which are more growth oriented. Though BXMX is very defensive with its option strategy and is suppose to be more S&P 500 index related like SPXX, in reality the fund is more growth oriented. BXMX also is the only Nuveen option fund managed separately from Nuveen, managed by Gateway Advisors , who have obviously done a great job. Though certainly more risky, the Nuveen equity CEF I actually like the best for 2016 is the Tax-Advantaged Total Return fund (NYSE: JTA ) , $11.70 market price, $13.22 NAV, -11.5% discount, 9.3% current market yield. JTA is a relatively small fund that can make big moves due to its 30% leverage in global dividend stocks and senior loan securities. JTA is not for the faint of heart. But with a 9.3% current market yield (8.2% NAV yield) and a -11.5% discount, I believe JTA offers excellent risk/reward in a rising interest rate environment and a contrarian global equity rebound in 2016. I also like JCE and JTD as part of the sweet spot middle group of the Nuveen funds but I would forget about JGV which has been a disaster for longer than I can remember. I gave JGV a chance with this article in May of this year, Now Is The Time For The Nuveen Global Equity Income Fund , but it has done nothing but disappoint. Conclusion Due to the length of this article, I will be back with my next round of equity CEFs to buy/sell form fund sponsors, including BlackRock and Voya . Scalper1 News
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