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Eaton Vance Tax-Managed Diversi Message Board

mike57dk 3 posts  |  Last Activity: Dec 5, 2014 12:13 PM Member since: Oct 30, 2009
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  • mike57dk mike57dk Dec 5, 2014 12:13 PM Flag

    This was ALWAYS a " Run & Gun " dividend capture fund ...essentially the fund bought stocks a day or two before the dividend x date ...captured the monthly or quarterly dividend or special dividend ...then dumped the shares a few days later ....portfolio turnover was north of 650% per year ...they racked up over $3 billion in realized capital losses in 2009 ...on a fund with about $1.1 billion in assets today ...
    Your Edwards broker could NOT have executed this trading strategy in any account ...as there is a circa 1929 era SEC / FINRA rule against " Selling Dividends " ...its illegal and the broker would lose their securities license for doing what is also considered " excessive trading / churning " ....
    For some reason; its totally OK for a mutual fund to engage in this tactic ...and Alpine's AOD fund was one of the largest initial public offerings in the closed end world when it originated ...during a super hot time in the equity market I seem to recall.
    There is little to no investment thesis ...just trade dividends ...and in good markets where there can be plenty of special dividends ...it works after a fashion. In poor to flat markets ...they get absolutely killed ...on a biblical level ...
    A little over two years ago; AOD replaced the fund manager and brought in two relatively young guys ...to restore / rescue the fund ...They have had a good equity market to support them and they have built up the NAV of the fund by more than 20% , increased the monthly dividend and are pacing the S&P 500 index within a 100 basis points in 2014 ...they also reverse split the stock 50% ...
    AOD may be worth holding on ...if you still own it at this point from the IPO price ( split adjusted $20) to see what 2015 brings ...but ...it is NOT an investment fund ...just a bull market trading tool with high current income.

    Sentiment: Hold

  • Reply to

    A little help here..

    by weblvr Oct 23, 2014 2:22 PM
    mike57dk mike57dk Nov 2, 2014 12:16 PM Flag

    Reply to weblvr - The cost basis adjustment caused by " Other Capital " or ROC is a very complicated issue with conflicting applications literally from brokerage firm to firm. My two brokerage firms have NEVER reduced the cost basis for ROC on shares of ETY. From this chat board I have learned that other firms DO IN FACT reduce the cost basis ...
    Lets take fiscal 2013 for example ...ETY management decided during the last month of the fiscal year to " re-characterize" the previous 11 months of distributions to 100% capital gains from the previous estimate of about 72% ROC ....They can do this in time for the annual report and the major league audit / accounting firm agreed ...then using the hundreds of millions of dollars in 2008 carry forward capital losses to wash against the impressive gains earned during the 2013 fiscal year ....resulting in a NET ZERO capital gains to the ETY shareholder ...
    How and when would the brokerage firms have reduced the cost basis of the ETY shares ? at fiscal year end ? , monthly ? ...what an accounting nightmare that would have been ...What if individual investors " manually " adjusted the cost basis data to report to the IRS ? ....well that info would be demonstrably different than the data provided by the brokerage firm ....triggering an automatic review from the IRS audit program ....( Oh Geez )
    Eaton Vance has a good website that includes a two page " white paper" on Negative ROC Versus Positive ROC ...ETY produces Positive ROC where the NAV has actually increased about +12% over the last 24 months ...compared to a typical CMO bond that will in fact reduce its value by the ROC delivered each month ...very possible to see $25,000 face value of CMO paper with a current value of $3,600 ...as individual homeowners in the CMO pool re-finance or simply sell the home, closing out the loan.
    That is NOT what is happening with shares of ETY. One of the best reasons to own any mutual fund is to let them do the math and accounting.
    regards

  • Reply to

    A little help here..

    by weblvr Oct 23, 2014 2:22 PM
    mike57dk mike57dk Oct 23, 2014 3:27 PM Flag

    weblvr - Good question ...and you are CORRECT that a large portion of the monthly dividend is classified as ROC or Other Capital ...except that in 2013 ...zero percent of the total distribution was classified as ROC ...ETY management made good use of the capital loss carry forwards from 2008 to " wash " those losses against a good year of capital gains ...
    Subsequently, the fund went back to the normal ROC component of each monthly dividend ...
    The fund essentially SELLS about 5,000 S&P 500 index call options against their portfolio each month with an average of two weeks of duration ...then closes 80% of the open contracts before expiration.
    The defensive nature of such a large position helps offset the portfolio value in times of sudden market downturn ...( early Oct for example ) and in normal or up markets ...the option premiums taken in by selling 5,000 option contracts helps earn income for the fund. Example - the last six month ( audited ) report showed the fund selling 29,755 call options ...and receiving $45,054,059 in premiums for them ...they closed out 20,500 of the open option contracts and had to pay $31,402,038 to do so ...the remainder simply expired ...with the fund retaining the premiums taken in ...
    Options are important to the fund as tax law REQUIRES that the tax treatment of index options, regardless of the holding period be treated as 60% long term gains and 40% short term gains ...likely explaining the " Tax Advantaged " name on the fund.
    How has the fund performed compared to the S&P 500 index ?
    YTD - ETY has produced a + 12.20% Total Return as compared to the S&P index of +6.81%
    Call it a 531 basis point advantage over the unmanaged S&P index ....

    Since Jan 1, 2013 or roughly 1.8 years of duration :
    ETY has returned + 36.36% compared to + 36.67 % for the S&P index ...

    Since Jan 1, 2012 or roughly 2.8 years of duration :

    ETY has returned + 65.87% compared to +59.80% for the S&P index ....

    hope this helps

    Sentiment: Hold

ETY
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