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Deconstructing the Delaware Enhanced Global Dividend & Income Fund (DEX): A Retrospective on Fundamental Analysis

The Delaware Enhanced Global Dividend & Income Fund (NYSE: DEX) was a diversified, actively managed closed-end fund (CEF) with an investment strategy focused on providing shareholders with a high level of current income and a secondary objective of capital appreciation. Its fundamental analysis was centered on assessing its ability to achieve its income objectives, manage risk, and deliver shareholder value, particularly given its nature as a leveraged, multi-asset global income fund.

Deconstructing the Delaware Enhanced Global Dividend & Income Fund (DEX): A Retrospective on Fundamental Analysis

I. Investment Objectives and Strategy Analysis

The core of DEX's fundamental analysis lay in scrutinizing its stated goals and the methods used to achieve them.

A. Core Objectives

DEX's primary objective was current income, with capital appreciation as a secondary goal. This dual focus was crucial. A fundamental analyst would look at the sustainability of its income generation versus capital preservation.

B. Global and Multi-Asset Mandate

The fund had a global mandate, typically investing at least 80% of its assets in a combination of dividend-paying or income-generating securities across various asset classes, including:

1. Equity Securities of large, well-established global companies.

2. Securities issued by real estate companies (including REITs).

3. Income-generating fixed-income securities.

Crucially, the fund maintained a geographic allocation of at most 60% in U.S. issuers and at least 40% in non-U.S. issuers (under normal market conditions). The global nature provided diversification but also introduced currency risk and geographic-specific risk (e.g., political and economic stability in foreign markets).

C. Enhanced Income Strategies

To boost its income, the fund employed enhanced income strategies, which included:

• Option Overwriting (Covered Calls): Selling call options on portfolio holdings to generate premium income. While enhancing current yield, this strategy limits the fund's potential for capital appreciation, as shares may be "called away" if the stock price rises significantly.

• Dividend Capture Trading: Buying a stock just before its ex-dividend date to receive the dividend, then quickly selling it. This can generate short-term income but can incur trading costs and potentially result in capital losses if the share price drops after the dividend payment.

• Leverage: The fund historically utilized financial leverage (borrowed money) to acquire more assets, aiming to enhance the return on common shares. This is a double-edged sword: it magnifies gains in favorable markets but significantly magnifies losses in adverse markets.

II. Financial and Valuation Metrics

As a closed-end fund, DEX required specific metrics for valuation, distinct from typical corporate stocks.

A. Net Asset Value (NAV) and Market Price

A crucial step was comparing the market price (MP) of the fund's shares with its Net Asset Value (NAV) per share.

$$\text{Premium / Discount}=\left(\frac{\text{Market Price}-\text{NAV}}{\text{NAV}}\right)\times 100$$

• Discount: When the market price is lower than the NAV. This suggests the market values the fund's assets at less than their actual worth, often seen as a potential buying opportunity. DEX historically traded at a persistent discount, suggesting market skepticism about management's ability to maximize returns or the sustainability of its distribution.

• Premium: When the market price is higher than the NAV. This suggests high investor demand, perhaps due to a strong track record or a high distribution yield.

B. Distribution Policy and Yield Sustainability

DEX implemented a managed distribution policy, aiming for a targeted annual distribution rate (e.g., 7.0% of average NAV). This guaranteed high income but necessitated an analysis of the distribution's source:

• Net Investment Income (NII): Dividends and interest earned, minus expenses. The most sustainable source.

• Net Realized Capital Gains (Short- and Long-Term): Gains from selling appreciated securities. Sustainable only if the portfolio keeps generating profitable trades.

• Return of Capital (ROC): Distributions that represent a return of the shareholder's principal investment. While tax-deferred, destructive ROC (paying out distributions that exceed the fund's NII and realized gains) reduces the NAV, eroding the fund's asset base and future earning potential. A fundamental analysis would meticulously track the percentage of ROC in recent distributions to assess long-term sustainability.

C. Expense Ratio

The expense ratio (management fees, operating expenses, and interest expenses from leverage) was scrutinized. Higher expenses put pressure on the portfolio to generate higher gross returns just to break even, thus directly impacting the NAV and the long-term total return.

III. Management and Performance

A. Manager Assessment

The Investment Adviser (Delaware Management Company, a subsidiary of Macquarie Investment Management, at the time of its closing) was evaluated based on:

• Track Record: Historical ability to meet the fund’s primary and secondary objectives.

• Expertise: The experience and skill of the portfolio management team in global, multi-asset, and options-based strategies.

B. Total Return Performance

Performance was judged not just by the high income yield, but by the Total Return on both the Market Price and the NAV. The Market Price Total Return measures what shareholders actually received, while the NAV Total Return measures the manager's skill in managing the underlying portfolio. Consistent outperformance of the NAV Total Return against its relevant benchmark (e.g., MSCI ACWI High Dividend Yield Index) was a sign of effective management.

IV. The Reorganization and Conclusion

The ultimate fundamental assessment was provided by the market and the fund's Board of Trustees, leading to its reorganization into the abrdn Global Dynamic Dividend Fund (AGDD) in 2023.

This decision often reflects a belief that a merger or reorganization offers a better path to shareholder value, potentially by:

• Achieving economies of scale and lowering operating expenses.

• Improving liquidity and narrowing the long-standing discount to NAV.

• Consolidating management expertise under a new structure or investment philosophy.

For investors who held DEX shares, their investment was converted into shares of AGDD, necessitating a new fundamental analysis on the successor fund, AGDD, to evaluate the long-term prospects of their investment.