Re: Old Folk Portfolio ... Buys
Purchases were made in JRO .. ARCC .. HTGC .. OCSL.
JRO is a Senior Floating Loan CEF, the others are Business Development Companies (BDC's).
In a rising interest rate environment there are specific classes of assets that should benefit.
1) Floating Rate Debt
2) High Quality companies with strong pricing power
3) Companies that benefit if commodity prices rise or "interest rates rise." These would include banks and other financial assets.
Floating Rate Debt -- A floating interest rate is one that changes periodically: the rate of interest moves up and down, or "floats," reflecting economic or financial market conditions. Often times it may be referred to as variable interest.
In a rising interest rate environment those loan interest rates are going to rise which is why assets with exposure to floating rates do well when interest rates are rising.
A purchase was made in JRO which is a Senior Loan CEF and basically is a floating debt asset.
Other assets expected to do well are BDC's who have a high exposure level to floating debt, and these BDC's, like CEF's, come with high yields.
A business development company invests money in privately owned, small- and medium-sized companies. Generally the businesses are facing challenges and need help to grow or get back on track, and they may not be able to obtain financing through traditional means, like bank loans or bond issues.
BDCs aim to generate income and capital gains when the companies they invest in are sold, much like venture capital or private equity funds. Business development companies are attractive choices because almost anyone can invest in them. That’s because they are public companies, traded on major stock exchanges. Venture capital and private equity are only available to accredited investors with large net worths.
Not all BDC's are worth owning in my opinion, but many BDCs actually stand to benefit from a rise in base interest rates thanks to these floating rate loans paired with the fixed low rate debt that BDCs issued over the last year. This means that as base interest rates increase, BDCs will likely see higher net interest margins and increased annual net income.
Therefore, in addition to purchasing JRO I also purchased HTGC, ARCC and OCSL. All are in the 9%-11% yield range if you include the special dividends they already announced they would pay going forward. |
