FCT - EFT: A Good Floater Fund That Can Be A Hedge Against A 'No Rate Cut' Scenario

2024-03-26 15:45:28 ET

Summary

• The Eaton Vance Floating-Rate Income Trust offers a high yield of 10.80%, which is higher than most investment-grade or junk bond funds.
• The EFT closed-end fund's portfolio consists mainly of floating-rate senior loans, which have higher yields than long-dated bonds in an inverted yield curve situation.
• The fund's distribution has been inconsistent over the years, but this is natural since the fund's income varies with interest rates.
• Economic data suggests that the Federal Reserve should not even be thinking about rate cuts, so it might be a good idea to hold this fund as a hedge.
• The fund is currently trading at a discount to NAV, but recent share price performance has been better than the fund's underlying portfolio.

The Eaton Vance Floating-Rate Income Trust ( EFT ) is a closed-end fund, or CEF, that income-hungry investors can employ in pursuit of their goals. As is the case with many leveraged loan funds, the Eaton Vance Floating-Rate Income Trust has a very attractive yield of 10.80% right now. Here is how that compares to some of this fund’s peers:

As we can immediately see, all of these funds boast double-digit yields right now, which is much higher than most investment-grade or junk bond funds possess today. The reason for this is that the yield curve in the United States has been inverted for quite some time now, with short-term yields being significantly higher than long-term yields. According to Axios , this has been the case for 628 straight days now. We can see this quite clearly by looking at the yields currently being offered by U.S. Treasury securities of different maturity dates:

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