Published Wed, 26 Dec 2018 18:31:23 -0500 on Seeking Alpha
I have recently been purchasing shares of higher-quality Business Development Companies ("BDCs") with risk-averse balance sheets prepared for rising interest rates and/or a potential economic downturn. However, I have not purchased shares of Monroe Capital (MRCC) since 2016 for the reasons discussed in this article.
High-yield investments, including BDCs, have been declining since early September potentially for a few reasons including investors expecting higher yields and fear of an economic slowdown and/or higher interest rates. However, MRCC has declined more than the others and is now below its January/February 2016 lows (discussed next):
Source: Yahoo Finance
Quick BDC Market Update
The general markets have been declining for various reasons, some of which are related to BDCs (including a potential economic slowdown) but the underlying fundamentals of the U.S. economy and BDCs remain strong. In January/February 2016, the markets experienced similar concerns including slowing Chinese growth and increased energy sector defaults driving higher yield expectations especially for non-investment grade debt as shown in the chart below. Please see “Junk bonds suffer a rare negative return in January”. This also resulted in wider interest rate spreads and favorable lending conditions. Higher quality BDCs typically have much higher portfolio growth during these periods as they take advantage of higher market yields.
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|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|BLACKROCK KELSO CAPITAL||6.16||17.6||0.35||0.72||11.92|
|GOLUB CAPITAL BDC||17.60||12.8||1.37||1.28||7.41|
|MAIN STREET CAPITAL||36.03||9.7||3.70||2.34||6.71|
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