EIBLX Commentary – Q4 2020
Thesis
EIBLX is a large floating rate fund that has a strong historical returns and a tenured management team. By investing purely in senior bank loans, EIBLX further increases our potential upside gain, reduces our duration-risk, and decreases our interest rate risk. We like that the fund utilizes a bottom-up investment process through proprietary framework analysis, avoids high-yield corporate bonds, and allocates to relatively higher-rated securities within the floating rate security space.
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Overview
In the fourth quarter of 2020, EIBLX underperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 13bps primarily due to the fund’s higher-quality security exposure – the fund’s underweight to CCC-rated bonds detracted from overall performance. Small cash allocation and avoidance of airline credit also weighed negatively on returns. Yet, overweight to health care, education technology, specialty pharma, and home furnishing credits contributed to returns, as did the fund’s underweight to the Utility sector and underexposure to CLOs.
Q4 2020 Summary
- EIBLX returned 3.68%, while the Leveraged Loan Index returned 3.81%
- Quarter-end effective duration for EIBLX was 0.26 and 0.11 for the Leveraged Loan Index
- Three largest contributors
- Envision Healthcare Hldg, Skillsoft Corporation, Serta Simmons Bedding LLC
- Three largest detractors
- Cash, American Airlines Group, Ameriforge Group Inc
Optimistic Outlook
- We hold this fund due to its relatively high yield and shorter duration, especially as we believe that rates will increase in the coming years
- New vaccines provide promise in seeing the economy and businesses reopen
- Loan prices are forecasting for improvement going forward, and while there is potential for higher level of risks, management does not see this as something that will directly affect loans’ attractiveness
[Category Mutual Fund Commentary]
Micah Weinstein
Research Analyst
Direct: 617.226.0032
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109