December 15, 2012 at 5:30 pm #17631
In an effort to find some yield investments, while also having liquidity, I have been looking at some of these “buy write” funds. They own blue chip dividend paying stocks, and then write calls against them. Consequently, the yield for these securities is around 10-11%. Some also pay out monthly. I am aware of the risk to capital should they sell off (although all assets are at risk w a major melt down as some of us here fear), but just wondering if anyone has owned this type of security in the past. Is there something I am missing? Seems like they would be decent investments for sideways to down equity markets and really under-perform in bull markets. Specifically I was looking at ETW and ETV. Both are from Eaton Vance. Any thoughts from the group? Thanks
Jim GrafJanuary 4, 2013 at 3:12 am #27006
be careful – these funds often use payments from capital to sustain dividends and subsequently you will / can see a declining NAV over time. In rising markets these funds tend to give up some upside in favour of the premium yield. Caveat emptor… You are better off executing a covered call strategy by yourself if you have the time…. All the best, Chris HoodJune 24, 2014 at 4:27 pm #27378
I have also been watching these funds–especially the closed end versions that trade at a discount to NAV, and some of them have provided a superior combination of current income, share appreciation, and low volatility. Indeed, Jim: ETY and ETW have had gorgeous charts . . . until a recent mini-rollover. Other possibles are: CII, NFJ, JSN, and AOD. I’m especially intrigued by the ones w/ Int’l stock exposure, and ETW claims it is even “tax-managed”. I’m a bit worried about the recent chart action on many of these vehicles (which might relate to current low call option prices), but their long term track record is undeniable. Christopher, I agree that it’d be great to construct and run our own Cov-call funds, but many of us just do not have the time such a strategy requires. Cov calls portfolios do require a lot of attention as calls expire and must be sold again. If a fund is doing it cheap and doing it right (as well as selling at a NAV discount), I’m willing to give em a chance. Hense EllisJune 25, 2014 at 6:21 pm #18194
FWIW. I am not a fan of these funds. No upside potential to compensate the downside risk. Please look at the AOD as an example, go back to pre 2008. Study that. Perhaps MLPs in the pipeline business, like KMI, KMP, VNR if looking for income in a growing industry?
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