Is EAFAX a Strong Bond Fund Right Now?

Zacks Equity Research

High Yield - Bonds fund seekers may want to consider taking a look at Eaton Vance Floating-Rate Advantage A (EAFAX). EAFAX holds a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.

Objective

EAFAX is classified in the High Yield - Bonds segment by Zacks, an area full of investment possibilities. High Yield - Bonds funds come in below investment grade, and are referred to as " junk " bonds for this reason. Compared to their investment grade peers, these funds are at a higher default risk, but typically pay out higher yields while posing similar interest rate risks.

History of Fund/Manager

EAFAX finds itself in the Eaton Vance family, based out of Boston, MA. The Eaton Vance Floating-Rate Advantage A made its debut in April of 2008 and EAFAX has managed to accumulate roughly $1.56 billion in assets, as of the most recently available information. The fund's current manager, Craig P. Russ, has been in charge of the fund since April of 2008.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 3.92%, and it sits in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 3.98%, which places it in the bottom third during this time-frame.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

If you believe interest rates will rise, this is an important factor to look at. EAFAX has a modified duration of 0.18, which suggests that the fund will decline 0.18% for every hundred-basis-point increase in interest rates.

Income

Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 5.52% means that a $10,000 investment should result in a yearly payout of $552.

A higher coupon is good for those seeking a strong level of current income, but it could also pose a reinvestment risk if rates are lower in the future when compared to the initial purchase date of the bond.

Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. EAFAX carries a beta of -0.22, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 3.4, which measures performance on a risk-adjusted basis.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, EAFAX is a load fund. It has an expense ratio of 1.02% compared to the category average of 0.36%. Looking at the fund from a cost perspective, EAFAX is actually more expensive than its peers.

Investors should also note that the minimum initial investment for the product is $1,000 and that each subsequent investment has no minimum amount.

Bottom Line

With a rank of 'hold' we aren't getting a good signal one way or another on EAFAX. That is why it might be a good idea to consider other items, such as the fund's expense ratio of 1.02%, and how this compares to other potential options being considered for investment. If cheaper, it might make a decent choice, but a more expensive fund might be worth avoiding. Just make sure to pay attention to its rank in case it shifts in the near future.

Your research on the High Yield - Bonds segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.


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