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First Trust Senior Floating Rate Income Fund II
First Trust Senior Floating Rate Income Fund II is a closed-end credit vehicle investing in first-lien senior secured floating-rate loans.
First Trust Senior Floating Rate Income Fund II
First Trust Advisors launched this closed-end fund in 2004 as a yield-oriented vehicle targeting institutional and retail allocators seeking income uncorrelated to Treasury duration. The fund purchases first-lien senior secured bank loans, typically extended to below-investment-grade corporate borrowers, where floating-rate coupons reset quarterly against a SOFR spread. These instruments sit at the top of the capital structure, offering structural protection through collateral claims and tight covenant packages that other creditor classes lack. The portfolio concentrates on broadly syndicated and middle-market senior loans across a diversified issuer set. Holdings historically span sectors including healthcare, technology, business services, and manufacturing. The floating-rate mechanism served as a crucial hedge during the 2022–2023 Federal Reserve tightening cycle, when fixed-income funds suffered mark-to-market losses while floating-rate vehicles captured rising base rates directly in their distribution yields. The fund distributes income monthly, a structure that attracts income-oriented allocators but historically compresses its net asset value during credit-spread widening events. The fund operates under the umbrella of First Trust Advisors, a Wheaton, Illinois-based investment manager overseeing a vast family of exchange-traded funds, closed-end funds, and unit investment trusts. First Trust's closed-end fund platform includes a stable of similar credit-income vehicles, each targeting a discrete niche — senior loans, high-yield bonds, or mortgage securities — allowing the firm to cross-sell into wirehouse and RIA distribution channels. The advisor earns a management fee based on average weekly managed assets, a standard closed-end fund compensation model that aligns fees with investment-company-level asset value rather than public-market share price. Structurally, the fund is a permanent-capital vehicle: as a closed-end fund, it does not face redemption pressure during market dislocations, distinguishing it from open-end bank-loan mutual funds that were forced to gate or sell into distressed markets. That structural permanence allows the portfolio management team, led by senior credit analysts within First Trust's taxable fixed-income group, to hold loans through temporary price dislocations — a genuine advantage when bank-loan secondary markets seize, as they did most notably in March 2020 and, before that, during the global financial crisis.
General information
Firm type
Fund of Funds
Year founded
2004
AUM
Undisclosed
Location
Region
North America
Country
United States
City
Wheaton
Corporate office
Wheaton, IL, United States
Sector focus
Frequently asked questions
How does a floating-rate senior loan fund perform when interest rates decline?
When reference rates decline, the floating-rate coupons reset lower, compressing the fund's distributable income. This creates a fundamental tension for income-focused allocators: the fund's net asset value may benefit from spread tightening as the economy improves, but its headline distribution yield — often the primary reason allocators buy in — declines directly with lower base rates.
What differentiates FCT's mandate from open-end bank-loan mutual funds?
As a closed-end fund, FCT does not face daily shareholder redemptions. Open-end bank-loan funds must maintain liquidity buffers and can be forced to sell assets into a declining secondary market when investors withdraw capital. FCT's permanent-capital structure allows the portfolio managers to hold loans through credit-cycle troughs without being a forced seller — a structural edge that mattered during the March 2020 loan-market dislocation.
What credit quality does the fund's portfolio typically hold?
The fund historically concentrates in below-investment-grade issuers, primarily single-B and double-B rated loans in the broadly syndicated market. These borrowers carry elevated default risk relative to investment-grade credits, but the loans themselves are senior secured with first-lien claims on the borrower's collateral, which historical recovery studies suggest recovers meaningfully more than unsecured high-yield bonds in default scenarios.
Does the fund use leverage, and how does that affect returns?
Closed-end senior loan funds typically employ structural leverage — borrowing at short-term rates to purchase additional loan assets — which amplifies both income and capital volatility. An allocator examining FCT should assess the fund's effective leverage ratio, its cost of leverage relative to portfolio yield, and whether the management fee is calculated on leveraged assets or net assets, as that directly affects the fee drag on total return.
How does the fund's monthly distribution policy work in practice?
Monthly distributions from senior loan closed-end funds are composed of net investment income — the coupon interest received from portfolio loans less fund expenses and leverage costs. During periods when base rates move rapidly, distribution amounts may reset with a lag, and a portion of the distribution could constitute return of capital if portfolio income temporarily falls below the managed distribution rate, particularly after the Federal Reserve cuts rates.
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