Money manager Adrian Day provides an update of his non-resource holdings and his interpretation of the Federal Reserve’s activities.
All of the Business Development Companies have moved up strongly in recent months from their grossly oversold year-end levels, in line with many other “dividend” plays, such as utilities. In general, we are holding, given the still-high yields and improvements at the companies, but not buying given the strong recent stock movement as well as yields that are coming down to historical norms.
Dividends still in high single digits
American Capital Ltd. (ACAS:NASDAQ) continues to report strong operations, with operating income up and strong originations. The company also continues to repurchase shares, about 11.5 million in the latest quarter. With the rally in the share price, the discount to the purchase offer from Ares has narrowed; we now call ACAS a “hold.”
Ares Capital Corp. (ARCC:NASDAQ) continues to deploy capital, as well as raise funds for managed funds (such as a $510 million CLO and a new $2.5 billion European fund); Ares earns fees from managing these funds. Ares continues to perform well, and is making up for the loss of the GE Capital joint venture. Though there could be some stock volatility when the merger with ACAS is completed, the merger will be accretive for Ares with the possibility of extracting more value from some of ACAS’s assets. With a covered yield of 9.5%, we are holding, despite the strong stock movement from under $14 in mid-July.
Equity raise risk?
Gladstone Capital Corp. (GLAD:NASDAQ) continues to experience net asset growth, with new originations exceeding ongoing high repayments of existing loans. NAV per share rose 3 cents. Net investment income fell slightly for the quarter, but still covers the dividend. The company also used a …read more