I think the dividend reduction was a big part of the move to a large discount. Also the fund seems to be loaded with treasuries and MBS. Hopefully the discount will not get bigger as rates keep rising. I think the short duration of the fund has resulted in a lower average coupon which probably hit the dividend stream along with the rising rates affecting their 30%+ leverage. Perhaps if they sense an end to interest rate rises they can lengthen the duration of the fund and increase the average coupon. One to watch quarterly for such changes which could lead back to dividend increases and a lessening of the discount.
i think if the fed is done raising rates the fund should recover to at least nav. that could give you a possibile 7% yield plus a possible 10% capital gain. this fund was 10% overvalued to nav just a few months ago. a word of caution though. if you look at the historical nav you will see that this cef went almost 20% undervalued to nav in 1996. it could go that low again.
I think if the next quarter the fund moves money out of the treasuries and MBS, then the discount should start to decrease. I will keep my eye on it. If they increase their dividend again I will jump back in.
CEF DISCUSSION PICK: EFT- Eaton Vance Floating Rate Income Trust. Share Price: $17.58 (11/11) NAV: $ 18.91 Discount: -7.03% YIELD: 7.78% FUND: EFT invests primarily in senior secured floating-rate loans- at least 80% of the assets. FYI, senior loans pay interest at floating rates linked usually to LIBOR plus a premium. The other 20% may be in loans which are not secured or have lower than senior claim or in any other income producing security. I like this fund because the majority of its assets are in securities with floating rates which are great investments in a rising rate environment. Also the majority are senior, secured so in cases of default, the lender (i.e. the fund lol) has a great chance of recovering principal. The fund has rasied its dividend from $.094 per share in November last year to the current $0.1140 per share thanks to rising interest rates. The fund was trading at a premium at the beginning of the year but dipped into a discount of over 7%. One factor for this is that it is leveraged up to 37% and rising rates squeeze the profit margin since leverage is from floating-rate preferreds. So there was an iniital squeeze on the margins due to rising rates but the overall dividend yield did increase and the fund income will continue to rise due ti its floating rate investments and stay ahead of its floating rate borrowings. Therefore, I think the discount will recover or at worst hold steady while you collect your 7% yield. What I like about the fund is that its top holding only makes up about 1% of the fund assets so there is internal diversification and the largest sector represented only makes up 5.92% (healthcare). THis diversification helps reduce the effects of potential defaults on these floating rate loans or if certain sectors suffer for any reason. Although the share price has fluctuated the NAV has held pretty constant (52-week range of $18.72-$19.21). SO the asset base is pretty solid if you can stomach the slight share variations. Management fee low at 1.04%. There is risk due to leverage and credit nature of secured loans but the rising rate environment and floating rate nature of the loans and the loan and sector diversification provide great hedges. I think ETF has a good chance of narrowing its discount and maintaining a great yield given the risk.
Eaton Vance Floating-Rate Income Trust Declares Monthly Dividend Business Wire - November 14, 2005 14:29 BOSTON, Nov 14, 2005 (BUSINESS WIRE) -- On November 14, 2005, Eaton Vance Floating-Rate Income Trust (NYSE:EFT) (the "Fund"), a closed-end management investment company, declared its monthly dividend of $0.115 per share. The dividend will be paid on November 30, 2005, to shareholders of record on November 23, 2005. The ex-dividend date is November 21, 2005. Based on the Fund's per share price of $17.58 at the close of the New York Stock Exchange on November 11, 2005, the Fund's dividend equates to an annualized market yield of 7.85%.
theres a couple funds involved in CEF activist activities... Elliot Partners is one and Karpus is another thats involved in Seligman Quality Municipal Fund SQF New Germany Fund GF Blackrock Advantage Term Trust BAT i used to do quite a bit of CEF arb, for example going long the Spain ETF and shorting the 30% premium Spain CEF, etc etc...
A strategy that I have considered for excess margin is buying Canadian bank preferred shares and trading bear credit call spreads against it. I have mentioned it to a few people and they always say "there are no options traded on preferreds". However, the price of the common shares has a high co-relation to the preferreds. I see it as a good way to generate yield with low volatility without currency risk as I am Canadian.
Looking at some insured muni bond funds as well for nice tax equivalent yields. Munis are not as sensitive to rate changes but I will still look for shorter duration muni funds. Will look and post any I find interesting...
An interesting thought but looking at the charts I don't see where you find any sort of common or predictable relationship between the pfd and the common: http://investdb.theglobeandmail.com...rt_type=+&pl_sh_movement=0&pl_long_movement=0 Above is comparison of Royal Bank Pfd K and common - try O and S and you'll see the same sort of thing.