ETG: A Volatile Leveraged Dividend Fund – Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG)

The Eaton Vance Tax-Advantaged Global Dividend Fund (ETG) is a leveraged close-end fund that primarily invests in dividend-paying stocks around the world. Despite returns that have handily outperformed other global equity indices, the fund may not be such a great investment. After taking into account leverage, the fund’s performance looks less impressive, and it may be more volatile than investors expect. Additionally, the fund has consistently traded at a discount to NAV over the past several years, so holding the fund in hopes that the discount eventually disappears may not be a viable strategy either.

ETG Overview

As we said in the intro, ETG focuses on investing in dividend-paying stocks and, indeed, eight of the top 10 holdings pay dividends.

(Source: Fund fact sheet)

ETG is also a true global stock fund with a majority of holdings classified by it as foreign stock.

ETG: A Volatile Leveraged Dividend Fund - Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG)

(Source: Fund fact sheet)

The dividend yield of the fund is not disclosed prominently; however, using the financial statements from the fund’s annual report, we calculated it has a dividend yield of somewhere around 3.8%. This figure isn’t exact as it includes the deduction of foreign taxes and also includes dividends from preferred stock. Additionally, the yield we calculated is based on the fund’s end of fiscal year AUM. However, the calculation is accurate enough to assess whether the fund is indeed following its stated investment, and it is.

ETG: A Volatile Leveraged Dividend Fund - Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG)

(Source: Fund fact sheet)

Also, fund returns have been more than enough to cover distributions, which is another encouraging sign for investors (and something that seems rare in the world of CEFs and non-public REITs).

However, the big issue we have with the fund is when we consider its performance in light of its leverage. Given that many of the dividend funds we’ve seen over the years have underperformed the market, it’s surprising to see that ETG has not.

ETG: A Volatile Leveraged Dividend Fund - Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG)

(Source: Fund fact sheet, highlights author)

The index used as a comparison is unlevered while the fund employs leverage (currently around 25%). We would expect the fund to beat the index over time, and especially during a bull market. A better point of comparison would either be to use some type of index that is levered or adjust the fund (or indexes) results to account for the leverage.

Looking at some more advanced statistics for the fund, the story of outperformance is a bit different.

ETG: A Volatile Leveraged Dividend Fund - Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG)

(Source: Morningstar)

ETG’s 15-year returns have outpaced an all world stock index (represented by VT), but it’s done so with significantly more volatility with a standard deviation of 17.88% versus 11.73% for VT. While volatility is often used as a proxy for risk in the investment world, they aren’t necessarily the same. However, we think in this case, the comparison is more appropriate than it usually is since the fund employs leverage, and as a dividend and income focused fund, it is likely being marketed towards investors that skew more conservative than average.

There is one thing that may be encouraging to investors. Much of what we have discussed in the article looks at the fund’s long-term track record, however, the fund has three new managers that started in 2010, 2013, and 2015 respectively. With relatively new management in place, there is a chance for the fund’s performance to improve. However, the same basic strategy of a levered dividend stock portfolio remains in place, so if dividend-paying stocks underperform the broader market in the future, there is not much management can do.

Summary

With the fund charging 1.18% in fees (interest expenses and related fees bring the expense ratio up to 1.94%), it’s hard to see how investors are getting their money’s worth. A 1.18% expense ratio is well above the mutual fund industry average, so investors should be expecting well above average performance. However, after adjusting for leverage, that doesn’t appear to be the case. Additionally, as a dividend and income focused fund likely being marketed towards investors who are more conservative, the fund may be much more volatile than what they would expect. Overall, it appears investors would just be better off levering up their own investment account and buying a global index fund.

Disclosure: I am/we are long VT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.