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Learning Centre
The Benefits of EIT.UN’s Leverage Strategy (May 2009)
Friday, May 01, 2009
Unlike open-ended mutual funds which are prohibited from using debt, EnerVest Diversified Income Trust ("the Fund"), as a closed-end fund, can access cash through a credit facility creating a strategic advantage. Borrowing is done at competitive interest rates and debt levels are reported twice annually. The Fund is restricted from borrowing greater than 20% of the Total Asset Value of the Fund and, with our conservative stance and outlook for the financial markets, we are still drawn well below these limits.
The ability to use leverage creates compelling benefits for unitholders:
- Seize Market Opportunities: The Fund can take immediate advantage of market opportunities with ready access to cash through borrowing rather than through the sale of performing investments.
- Earn Incremental Income: The difference between the interest rate charged and the portfolio yield is incremental income which enhances overall yield.
- Minimize Exchange Risks: The Fund can take advantage of opportunities available in the US market by purchasing these investments with US$ borrowings, limiting our exposure to foreign exchange fluctuations.