Ibrahim Akcengiz
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (NYSE:ETO) is a closed ended equity mutual fund (CEF) that invests in diversified sectors in the public equity markets across the globe. Its investment objective is to generate a high percentage of after-tax total return which is achieved through income from dividend paying stocks. The fund employs fundamental analysis to create its portfolio. A small exposure to U.S. high yield bonds also helps this fund enhance its current income. The fund generates strong and steady yield, but fails to generate price growth.
The Fund
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund was formed on April 30, 2004 by Eaton Vance Management. The fund benchmarks its performance against the MSCI World Index. iShares MSCI World Index ETF (XWD:CA) is the closest rival of ETO, which is also based on MSCI World Index. The MSCI World Index constitutes large and mid-cap stocks across 23 stock markets of economically advanced nations. With 1,513 holdings, the index covers approximately 85 percent of the free float-adjusted market capitalization in each of those 23 markets.
The fund has been paying a monthly dividend since 2004 on a consistent basis. The yield remained strong. Average yield over the past 8 years has been more than 9 percent. However, the price performance has been disappointing, and failed to generate significant positive returns in short, medium as well as long term. The fund only suits the needs of income-seeking investors. The price return has been so poor that it failed to achieve a substantial total return. The fund also has a high but manageable expense ratio of 1.3 percent, and has an asset under management (AUM) of $338 million.
ETO’s Portfolio is Dominated by Technology, Healthcare & Financial Stocks
Almost half of the entire fund is invested in stocks from technology, healthcare and financial sectors. All these three sectors are poised for steady and strong growth in the next 15 years. Major investment in technology stocks included globally known large-caps like Microsoft Corp. (MSFT), Apple Inc. (AAPL), Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN), ASML Holding N.V. (ASML), RELX PLC (OTCPK:RLXXF), Schneider Electric S.E. (OTCPK:SBGSF), AMETEK, Inc. (AME), Taiwan Semiconductor Manufacturing Co Ltd (TSMC), CDW Corporation (CDW), TE Connectivity Ltd. (TEL), Ingersoll Rand Inc (IR), Micron Technology Inc (MU), Dassault Systemes SE (OTCPK:DASTY), Intuit Inc. (INTU), Infineon Technologies AG (OTCQX:IFNNY), etc.
Investments in the healthcare sector were also made in large-cap stocks such as Eli Lilly & Co (LLY), Novo Nordisk A/S (NVO), Boston Scientific Corp. (BSX), Elevance Health Inc. (ELV), Danaher Corporation (DHR), Sanofi (SNY), Roche Holding AG (OTCQX:RHHBY), Zoetis Inc. (ZTS), AstraZeneca PLC (AZN), Intuitive Surgical, Inc. (ISRG), Siemens Healthineers AG (OTCPK:SEMHF) etc. Interestingly, none of these are biotechnology companies, which are facing high degree of volatility, and mostly negative growth over the past 10 years.
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund also invested in selective financial institutes. However, the largest global banking giants such as Citigroup Inc. (C), Industrial and Commercial Bank of China Limited (OTCPK:IDCBY), Bank of America Corporation (BAC), and JPMorgan Chase & Co. (JPM), etc. are missing. Major investments in these sectors included Visa Inc. (V), Wells Fargo & Company (WFC), Fidelity National Information Services, Inc. (FIS), HDFC Bank Limited (HDB), Banco Santander, S.A. (SAN), M&T Bank Corporation (MTB), etc. These stocks are also reputed brands, and have been some of the best performing stocks in their domestic equity markets.
Valuation
Stocks from technology, and healthcare sectors have had a poor year in 2022. Stocks of financial companies however performed much better. That’s why Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund has performed poorly in terms of price. However, it is n that, over tot unreasonable to expect that over the next 15 years these three sectors are going to have tremendous growth opportunities. The global diversification of investments in large-cap and mid-cap stocks from diversified sectors also makes this fund less risky than technology, financial or healthcare based funds investing only in the United States. Use of leverage of around 20 percent, and investments in high yield bonds provide further cushion to this fund.
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund is trading at a marginal premium to net asset value (NAV) of $20.61. The fund recorded a 3-year low price of $10.84, and a 3-year low NAV of $14.35. Thus, the current price doesn’t seem to be the right entry point. Also, the fund has high price multiples, as compared to its peers. It has a Price/Earnings (P/E) ratio of almost 17, as compared to Index’s P/E of 12.6. Price/Book (P/B) and Price/Sales (P/S) also stood high at 2.72, and 2.34, respectively. Price/Cash flow (P/CF) ratio also stood at 11.15 as compared to Index’s P/CF of 7.27. I am of the opinion that investors should not think of accumulating this stock at the current price point.
Investment Thesis
Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund invests in high dividend paying stocks around the globe. It diversifies its investment in various sectors and also invests in high yield US bonds. All these have enabled it to generate strong yields. Moreover, the fund offers a monthly pay-out. As a result, this fund is quite attractive for income seeking investors. However, it has failed to generate price growth, and the trend is expected to continue. Thus, it isn’t attractive for growth seeking investors. A price loss of 36.5 percent in this year should have made this fund more attractive, but the price multiples are still quite high, and the fund is trading at a marginal premium over its NAV. Only income seeking investors should hold the stock, and that also for a very long time, ignoring the price performance.
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