Eaton Vance Floating Rate Income Trust: A Fund to Capitalize on Rising Rates
As rates begin to climb for the first time in years, here's a great way to take advantage.
Something has happened in the bond market - rates have risen sharply across the board for the first time in years.
I think this is the beginning of a major sea change: rising rates as the economy recovers and the Federal Reserve's extreme "easy money" policies finally kick in.
Eaton Vance Floating Rate Income Trust (EFT) has a lot going for it. EFT is a "prime rate" closed-ended fixed income fund managed by Eaton Vance Management in Boston.
The fund invests primarily in senior, secured floating rate corporate loans. As short-term interest rates rise, EFT will gradually increase its monthly income. Thus, this prime-rate fund operates just the opposite of a long-term bond fund like the Blackrock Muniholdings Insured Fund II (MUE).
When interest rates rise, traditional long-term bond funds decline in price; prime rate funds like EFT increase. Indeed, the Eaton Vance Floating Rate Income Trust has increased its monthly dividend since October 2011 - and I think that trend will continue. It currently pays $0.083 a month for a 6.4% annual yield.
However, it always declares a Christmas bonus. In late December, EFT paid an additional $0.12 per share. So, the current yield is expected to be 7.2% or higher this year.
Like all prime rate funds, EFT is leveraged to maximize yield. But it is selling at slightly below its net asset value of $15.66. And it has the lowest expense ratio in the industry of 1.2%.
There's plenty of liquidity in this fund, but don't chase it. If it jumps ahead way above its net asset value (or NAV), wait a few days for it to come down to a reasonable price.
With rates rising, prime rate funds like EFT will enjoy generous dividends and capital gains, the best of both worlds.Editor's Note: This article was written by Mark Skousen of Forecasts & Strategies.
Below, find some more great investing and trading content from MoneyShow:
4 Promising Funds on the Rebound
By Richard Moroney
A Tech Fund for the Long Term
By James Kedzierski
The Fed Helps This Solid Bond Fund
By Carla Pasternak
Bill Gross Goes ETF...Is That Wise?
By Benjamin Shepherd
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter