EFT: Overpriced Leveraged Loan CEF

2025-02-25 10:32:05 ET

Summary

• Eaton Vance Floating-Rate Income Trust is currently overpriced, trading at a premium to NAV, which is unusual and at the top of its historic range.
• EFT's 8.5% distribution yield is not impressive given its high leverage ratio, making it less attractive compared to lower-risk ETFs like LONZ and FTSL.
• Leverage in EFT results in higher drawdowns during risk-off periods, making it more volatile compared to non-leveraged ETFs.
• With rising defaults and potential credit spread shocks, EFT is a 'Sell' at the current price, favoring a switch to LONZ or FTSL.

Thesis

Eaton Vance Floating-Rate Income Trust (EFT) is a leveraged loans closed-end fund that we have not covered for almost four years. There have been numerous macro events since, and we will re-visit this CEF from the Eaton Vance family....

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