EIBLX Commentary – Q1 2021
Thesis
EIBLX (currently yielding 2.89%) 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 first quarter of 2021, EIBLX underperformed the benchmark (S&P/LSTA Leveraged Loan Index) by 38bps primarily due to the fund’s overweight positions in a facilities management company and energy-related holding. Additionally, performance lagged the comparable index due to the fund’s slightly higher-quality, specifically an underweight to the CCC-rated tier and second-lien loans. Overweight allocations to financial intermediaries and cable & satellite television segments detracted from returns, yet the fund’s underweight to utilities contributed to performance. A recent allocation to CLOs and the fund’s positions in media, home furnishings borrowers, and specialty drug maker also helped offset some of the lagging exposures.
Q1 2021 Summary
- EIBLX returned 1.40%, while the Leveraged Loan Index returned 1.78%
- Quarter-end effective duration for EIBLX was 0.26 and 0.11 for the Leveraged Loan Index
- Three largest contributors
- Underweight to ION Media Networks Inc, Serta Simmons Bedding LLC, Mallinckrodt International
- Three largest detractors
- Underweight to IAP Worldwide Services Inc, Ameriforge Group Inc, David’s Bridal 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
- Massive stimulus, an accommodative set of monetary policies, and continued rollout of vaccines provide a positive backdrop for the asset class
- Default rates continue to decline giving a favorable outlook, yet loan valuations look to be fairly and fully priced
[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