The big American fund manager Eaton Vance has launched its first Australian-domiciled fund, the Eaton Vance International (Australia) Senior Loan Fund.
The new fund is mainly invested in US bank loans, but it is fully hedged back to Australian dollars. It utilises floating-rate loans, which earn a credit ‘spread’ over a floating interest rate. These type of loans are also a good hedge against rises in interest rates and inflation, according to Eaton Vance director of bank loans Scott Page.
However, Page was quick to point out that floating-rate bank loans did not require a high interest rate or inflationary environment – the fact that they perform well in that environment is simply a bonus.
“Right now spreads are incredibly attractive in the US, and the risk is no different than it’s ever been. There is a huge amount of safety built into this,” Page said.
While he acknowledged that the companies the fund invested in were not investment-grade, Page said that the secured nature of the floating-rate loans offered investors protection. Additionally, the loans do no have the ‘duration risk’ of 30-year treasury bonds, he said.
“In the current low-yield environment, floating-rate loans offer the potential for high income generation, while helping to reduce overall portfolio duration,” Page said.
“Floating-rate loan spreads are currently very attractive compared to historical standards, and we believe that issuer fundamentals are strong with current defaults below the historical average,” he added.
Eaton Vance’s representative in Australia, Nicholas Allen, said the US company was speaking to institutional investors such as superannuation funds, insurance companies and universities to start the fund. Page said $75-$100 million was required from a few seed investors to get the fund going, and he added he would be disappointed if the fund did not reach $1 billion in funds under management.
Equity Trustees will be the responsible entity for the fund, and State Street Australian will be the fund’s custodian.
Eaton Vance also plans to introduce its emerging market and global macro capabilities to Australia, along with a service that will provide investors with an estimate of their after tax-returns.
