EVN: A Buy for Tax-Equivalent Yield

Eaton Vance Municipal Income Trust (NYSE:EVN) is a closed-end fund offering tax-exempt municipal bonds for investors in higher tax brackets. Currently trading at a -2.66% discount to net asset value, the fund is a good option for those seeking tax-free income. With a yield of 3.5%, it offers an attractive tax-equivalent yield for investors in higher tax brackets.

Eaton Vance Municipal Income Trust (NYSE:EVN) is a closed-end fund that offers tax-exempt municipal bonds, making it an attractive option for investors in higher tax brackets. As of the current date, the fund is trading at a -2.66% discount to its net asset value (NAV), which provides an opportunity for investors to purchase shares at a lower price than their intrinsic value.

The fund's investment objective is to provide current income exempt from regular federal income tax. With a yield of 3.5%, EVN offers an attractive tax-equivalent yield for investors in higher tax brackets. For instance, an investor paying a tax rate of 32% or more would experience a tax-equivalent yield of 8.85% [2].

EVN's portfolio is well-diversified, with the top 10 holdings accounting for 17.71% of the fund. This low concentration risk means that the fund's performance is not overly dependent on any single bond. The fund's holdings include municipal bonds from major cities and state activities, such as airports, education, and water projects [2].

The fund's management expenses are currently less than one percent at 0.94%, with the remaining 1.4% being interest expenses for leverage. The fund's total leverage ratio is 40.42%, which allows the portfolio manager to enhance the fund's performance by borrowing to buy bonds. However, this also introduces the risk that the fund's performance could sink if the bonds underperform the cost of the loan [2].

Over the past 10 years, an investment of $10,000 in EVN grew to $13,060 with reinvested dividends, outperforming the sector index which would have risen to $12,370 [2]. This strong performance is partly due to the fund's active management, which has consistently outperformed its peers in the municipal bond sector.

Investors should be aware of the risks associated with EVN, including the potential impact of rising interest rates and a selloff in the stock market. However, with calls for the Federal Reserve to cut rates in the future, the demand for a CEF paying a taxable equivalent yield of over 8% is high, making EVN an attractive option for federal tax-free income [2].

References:

[1] https://finance.yahoo.com/quote/KTF/
[2] https://seekingalpha.com/article/4790646-evn-monthly-income-exempt-from-federal-taxes