FCT - EFR: Should Be A Good Income Vehicle For The Rest Of This Year

2024-06-23 03:21:38 ET

Summary

• Eaton Vance Senior Floating-Rate Trust offers high current income for investors in the current interest rate environment.
• The fund's performance has been strong due to rising interest rates, in direct contrast to most debt securities.
• The fund's leverage ratio is acceptable right now, relative to its peers.
• The Fed's minutes suggest that interest rates will remain high for an extended period, which should benefit this fund and its investors.
• The fund currently looks a bit expensive as it trades at a premium and the shares have been outperforming its net asset value.

The Eaton Vance Senior Floating-Rate Trust ( EFR ) is a closed-end fund that income-seeking investors can purchase as a method of achieving their goals. As is the case with most closed-end funds that invest in floating-rate debt securities, this one has enjoyed a very impressive performance over the past two years or so. After all, floating-rate debt securities are one of the only forms of debt that does pretty well when interest rates increase. The comments that the Federal Open Market Committee made following the June meeting strongly suggest that the fund's stellar performance will continue for a while yet, as the dot plot points to a single interest rate cut this year:

The federal funds rate median projection for year-end 2024 is 5.133%, which is only a single 25-basis point cut from today's levels. That is a very hawkish pivot from the three rate cuts that officials previously projected. It is also worth noting that the long-term projections were increased quite a bit, with some officials now apparently believing that interest rates going forward will be much higher than many of us have become accustomed to over the past decade. This is obviously good for a fund like the Eaton Vance Senior Floating-Rate Trust, since its income depends on interest rates and floating-rate securities rarely deliver much in the way of capital gains. As such, this fund is looking much better than it did only a few months ago....

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