| Valuation method | Value, $ | Upside, % |
|---|---|---|
| Artificial intelligence (AI) | 42.30 | 319 |
| Intrinsic value (DCF) | 21.82 | 116 |
| Graham-Dodd Method | n/a | |
| Graham Formula | n/a |
First Trust Senior Floating Rate Income Fund II (NYSE: FCT) is a closed-end fixed income mutual fund managed by First Trust Advisors L.P., specializing in senior secured floating rate corporate loans. The fund primarily invests in U.S. fixed income markets, targeting high-yield, low-duration debt instruments that benefit from rising interest rates due to their floating rate nature. Benchmarking against the S&P/LSTA Leveraged Loan Index, FCT provides investors with exposure to leveraged loans, offering potential for higher income with reduced interest rate risk compared to traditional fixed-rate bonds. Operating in the Financial Services sector under Asset Management - Income, FCT appeals to income-focused investors seeking diversification and yield enhancement in a rising rate environment. With a market cap of approximately $256 million, the fund emphasizes capital preservation while delivering consistent dividends, currently yielding around 9.3% (based on a $1.164 annual dividend). Its strategy aligns with institutional and retail investors hedging against inflation and interest rate volatility.
FCT presents an attractive option for income-seeking investors, particularly in a rising rate environment, due to its focus on floating rate senior loans that mitigate duration risk. The fund’s 9.3% dividend yield and consistent net income ($32.1M in FY 2024) underscore its income-generating capability. However, risks include exposure to credit quality deterioration in leveraged loans and reliance on refinancing markets. The fund’s low beta (0.41) suggests lower volatility relative to equities, but its narrow focus on leveraged loans limits diversification. With no capital expenditures and strong operating cash flow ($43.9M), FCT maintains liquidity, though its debt-to-equity ratio (~12%) warrants monitoring. Investors should weigh the high yield against potential defaults in the leveraged loan space.
FCT’s competitive edge lies in its niche focus on senior secured floating rate loans, which are typically higher in the capital structure and offer better recovery rates in defaults compared to unsecured debt. This positions FCT favorably against broader fixed-income funds during economic downturns. The fund’s active management by First Trust Advisors provides access to curated leveraged loan portfolios, differentiating it from passive ETFs like BKLN. However, FCT faces competition from larger closed-end funds (e.g., PFLT) with broader mandates and lower expense ratios. Its small size ($256M AUM) may limit scalability but allows for agility in loan selection. The fund’s outperformance hinges on First Trust’s credit analysis capabilities and the broader health of the leveraged loan market, which is sensitive to macroeconomic conditions. While FCT’s floating rate feature is a strength in rising rate environments, it could underperform if rates stabilize or decline.