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Eaton Vance Tax-Managed Diversi Message Board

  • mike57dk mike57dk Feb 26, 2014 12:25 AM Flag

    Jan 2014 - 92% ROC

    Just got the letter from EV - They characterized the Jan distribution as 92% ROC ...so they are going back to the methodology used prior to the fiscal 2013 year where they used capital gains / interest income ...

    This is what the EV rep advised they would be doing ...and it does hold some significant tax advantages for shareholders ...

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    • What I find troublesome is that ROC is not so good for a tax-advantaged account (IRA, etc.) because the account is already tax-advantaged, so the tax deferrment doesn't do you any good. So you buy ETY, know that it uses ROC, and put it in a regular account. Then at the end of the year you discover that it is all income and no ROC! It could bite you the other way around, too.

      Oops...

      • 1 Reply to ninja69turtle
      • hey ninja69turtle -
        Some good points ...but perhaps think of it this way :
        1. ETY earned +28% in 2013 ...and is UP +3.43% ytd ...so simple appreciation in value is a primary factor in owning the fund ...irrespective of the ROC component.
        2. ETY is far surpassing ( ytd thru Feb 26 at least ) the performance of the S&P 500 which is around - 0.34% ...and it will likely take a number of months for the index to catch up given the annualized 9% dividend stream from the fund.
        3.The landscape of taxation has "fundamentally changed" ( sound familiar ?) with the implementation of the recent tax law changes ..." Pelosi tax " / higher rates on dividends / surplus Medicare tax on high earners ...significantly raising the amount of taxation due from investments like dividends and interest ..This new taxation will unfold in March & April as investors suddenly notice that their tax bill went UP by thousands ...causing them to look for alternative high yielding investments that don't produce giant taxation ...Option Income funds like ETY stand to benefit ...and it should help drive the market price higher.
        4. ROC does cause the cost basis to be reduced ...something we have debated vigorously here on the chat board ..so your average " basis " in ETY will decline over the years ....and making your capital gains on the sale somewhat larger ...but that will take years to make a significant impact and you can always flip out of the fund into a similar one ...or back into it after 30 days if that becomes an issue for you.
        5.The change from an ROC heavy distribution to interest / capital gains in 2013 was essentially a " One -Off " decision to make use of the $450,000,000 capital loss carryforwards they had on the books ...losses that would begin to expire in 2017 by the way ...This has washed the books clean of these capital losses ...while proving they can EARN the large dividend distribution ...without ROC being a part of the discussion ...It was a BOLD move ...

 
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