With all the rate cut chatter, I did some research and arrived at essentially the same conclusion. Well-run BDCs and well-managed funds (like PBDC) know how to navigate the waters in a variety of interest rate conditions. I'm not reducing any BDC holdings and may actually be a buyer if too many people follow the "interest rate cuts are bad for BDCs" mantra and drive the prices/NAV down. Thanks again for all the excellent videos!
Great explanation on rate cuts and BDCs👍. I took my profits and sold out of most of my MAIN position a couple of months ago. Good to know these will still do OK as rates fall. I will be continuing to add to my positions in MAIN, GAIN, and ARCC if prices drop over the next few years.
Yes, that's a good point. MAIN did well, but that was a long time ago and the BDC industry was quite young then. It has improved a lot since. There would be losses in every lending asset class in a deep recession, hence the need to diversify beyond BDCs.
Thanks, glad it was helpful. There are many types of funds that hold senior loans. If the loans are floating then rate cuts will gradually make them less profitable, but also lower default rates.
Added three new BDCs to my collection, GBDC, HGTC, & OBDC, added significantly to ARCC on Hurricane Debby day in August, when it dipped below $20. Also added to CSWC and HRZN, letting MAIN and PFLT ride, too pricey for my wallet. In fact, trimmed a little MAIN to deploy the profit elsewhere. I view BDCs as alternatives to banks, which generally don't pay enough for me to consider income. Though I like special dividends, I don't add them to my tracker spreadsheet, then when they don't pay, the hit to my income is not as significant. When they do, it's a bonus.
I agree, those special dividends are a bonus! Thanks for sharing your detailed BDC portfolio. I like BDCs too, but I don't want them or any asset class to dominate my portfolio.
I like them too. But I don't want to overweight them (or any asset class for now). Seems odd to me that they are completely ignored by the financial media and most investors. They aren't perfect but they have their place in an income portfolio.
Another great video, and the link to Juan’s article on Seeking Alpha was a nice read. Looks like a roller coaster for the next few weeks, let’s all hold on for the ride, in the market 👐🤓
To me the biggest concern is not interest rate - but it is one of the concerns because it’s directly linked to NII. I may have a different outlook on the recession risk, but defaults risk is far more important to consider than interest income. The other thing is the bullish sentiment overall. The “private lending” seems to attract a lot of supply of money due to the strong performance over bonds in recent history. There is potentially a supply/demand issue here that may lead to overreaching into lower quality loans. I have a 10% allocation in credit - including real estate lending, BDCs and CLOs. Happy to hold this allocation but hesitant to overweight at this time.
Yes, defaults are important. If rates remain high for long enough, the default rates are at risk of increasing to the point where they have a material effect on the balance sheet. Same outcome if there's a recession. As much as I like BDC's and fixed income, moderation and diversification are the best practice.
I read somewhere that individual BDCs have some type of management fee associated with them. From my understanding these fees indirectly affect the investor. I don’t know about ones that are externally managed. Would they have a higher fee?
Most BDC's are externally managed and the management company charges a fee to do that. MAIN is an exception; it's internally managed. Fees have a small effect on the profitability but I wouldn't simply buy the BDC with the lowest fee. It's more about which management team is best at underwriting and managing loans.
Mr Market is not worried about Economy doing a soft landing.. it's covering the possibility of a hard landing or even a crash landing.. Long term holders will see it as a buying opportunity ... could sell Oct 20 puts and potentially pick up ARCC for 19.70 then.. or keep the premium for a yield higher than the common pays.
I can't offer financial advice, nor do I try to time the market. The "best" time to buy SVOL is when the VIX is high and decending and the futures curve is in Contango. This rarely happens. I just bought gradually over time and didn't look for special opportunities.
I think you're referring to GSBD. There are about 50 BDCs and I don't follow all of them. I haven't looked into that one. The newsletters I follow haven't had anything great to say about it so I didn't spend time on it. I think BDC's are doing fine at the moment. Their month to month price fluctuations don't necessarily reflect the state of their businesses.
Started buying both BCAT and ECAT and noticed that only ECAT fell a tiny bit in the big Sept 6 mini crash. BCAT barely moved and ECAT maybe dropped .20-.25. I love the 21% payouts and think these two are the highest paying CEF I’ve owned (except for CLM and CRF 21% plus the NAV drip). Not sure how falling rates will affect these two so as usual I will DCA into them. I only hold two BDC’s ARCC and HTGC,
@@armchairincomechannel looks like big heavy corporate bond funds, one green focused. These dividends sure jump big and wonder if they might be lowered just as quickly! Not the best thing for investors wanting stability in income! lol!
ECAT/BCAT have been a very solid addition. We will have to see if they keep the 20% for 2025. I been adding back into PDO/PDI/PTY (Pimco's). Expecting these to grow NAV back to pre-Covid prices with the interest reduction. Plus, GIAX (FEPI Type) looks very interesting. They hold Vanguard/QQQ/actual stock. First ETF I have seen holding Vanguard. Still new...seems solid.
@@mark1BlackFox I used to own PDI for a really long time but sold out in May of 2022 and haven’t rebought. Keep thinking about it though. lol. Got sidetracked with YieldMax offerings. I have too much in CDs and money markets that I have to start moving over to the equity side.
I'm not concerned at all, even with high interest rates the best BDCs have lower default rates than banks. With lower rates, it will only get better and they'll be able to make more deals.
One red flag I have been investigating recently is the value on the balance sheet of those BDCs which hold equity or warrants as well as debt. I believe that the valuations on these remain inflated and will continue to be written down. Less of an income issue but will degrade the BDCs balance sheets and raise their cost of capital. Something to watch for.
I've been curious. If you were to buy just 10 ETFs and hold them forever what would they be? Many of us don't have the discipline to continue to buy and sell.
I don't think that "set and forget" investing is applicable to high yield income investing. That approach works best for investment strategies that can rely heavily on indexes that rebalance themselves. eg. VOO for growth or SCHD for dividend growth.
@@armchairincomechannel This might be a good video topic. I would argue that you could buy and hold SVOL, PFFA, SPYI, QQQI, PBDC, UTG, IWMI, etc... The primary reason people lose money is panic selling, so a buy and hold strategy works best for most people.
I personally completely sold out of all my REITs,The writing is on the wall Commercial Real Estate is going the same way of the Shopping Mall. They are going to great lengths to force people into these buildings which won't work.
@@raghavendrasunku9233 I have ETFs already exposing me to healthcare,The other 2 im bearish on and could careless about getting the potential "Upside" in them as the downside risk far exceeds any gain possible to me.
If you're referring to this BDC video, BDC's don't invest in real estate. More generally, I'm avoiding office REIT's. Multi family, industrial, and a few other segments will do well over the long term.
ARCC did well in 2019. But what about 2020? Answer: it went from $20 to $10... It eventually recovered, but it's worth pointing out that there's a lot of drawdown risk in BDCs since they are leveraged and lend to junk quality borrowers .
Didn't everything go down a lot in 2020? I take your point...BDC's went down further than the overall market! To own these you have to be willing to ride the volatility. If you're holding for income (rather than appreciation) then volatility is less of an issue as the point isn't to sell for a profit.
Snowball Dividend Tracker (Create a Free Account, and the 10% Discount will appear under "Subscribe"):
armchairincome.link/snow
Great video brother. I appreciate how you put things in layman’s terms and answer questions regularly investors would have. Keep up the good work.
I appreciate that! Thanks for the feedback.
The value you continue to bring to the income investment community is unparalleled. Thanks for the videos.
I appreciate that!
Thank you for the video! I’ve pondered the same question whenever I look at my allocation to BDC’s. This was helpful!
You are so welcome!
With all the rate cut chatter, I did some research and arrived at essentially the same conclusion. Well-run BDCs and well-managed funds (like PBDC) know how to navigate the waters in a variety of interest rate conditions. I'm not reducing any BDC holdings and may actually be a buyer if too many people follow the "interest rate cuts are bad for BDCs" mantra and drive the prices/NAV down.
Thanks again for all the excellent videos!
Thanks for your feedback. I wouldn't mind picking up some more MAIN if the price falls...but not much chance of that!
@@armchairincomechannelrecent sub working my way through the back catalog and MAIN +20% since you published this one 😮
Woo hoo! Best part of my weekend!
That's very kind of you to say! Glad you enjoy the videos and thanks for commenting :)
Great explanation on rate cuts and BDCs👍. I took my profits and sold out of most of my MAIN position a couple of months ago. Good to know these will still do OK as rates fall. I will be continuing to add to my positions in MAIN, GAIN, and ARCC if prices drop over the next few years.
I have a similar outlook to you. Seems like every time I sell MAIN at a profit, it shoots up even higher!
Thanks for answering most of my questions! The remaining and key one is how BDCs and REITs did in the GFC and in a deeper recession.
Yes, that's a good point. MAIN did well, but that was a long time ago and the BDC industry was quite young then. It has improved a lot since. There would be losses in every lending asset class in a deep recession, hence the need to diversify beyond BDCs.
Great video thank you as always the management fees and 1:18 the way they are made it report those is nuts!
My pleasure :)
One of my favourite income investing channels! Thank you so much!
Glad you enjoy it! thanks for watching.
Great video thank you as always. Yes the management fees and the way they are made to report them is nuts!
Thanks for your feedback, I'm glad it was helpful!
I'm glad you had this on. This is on BDCs -- what about Senior Loans funds that have Floating Rate loans.
Thanks, glad it was helpful. There are many types of funds that hold senior loans. If the loans are floating then rate cuts will gradually make them less profitable, but also lower default rates.
Great job as always, and answering a question I have contemplated. Thank you for the channel and your shared insights!
Awesome, thank you!
Added three new BDCs to my collection, GBDC, HGTC, & OBDC, added significantly to ARCC on Hurricane Debby day in August, when it dipped below $20. Also added to CSWC and HRZN, letting MAIN and PFLT ride, too pricey for my wallet. In fact, trimmed a little MAIN to deploy the profit elsewhere. I view BDCs as alternatives to banks, which generally don't pay enough for me to consider income.
Though I like special dividends, I don't add them to my tracker spreadsheet, then when they don't pay, the hit to my income is not as significant. When they do, it's a bonus.
I agree, those special dividends are a bonus! Thanks for sharing your detailed BDC portfolio. I like BDCs too, but I don't want them or any asset class to dominate my portfolio.
@@armchairincomechannel Thank you for the reply. Completely agree.
Thank you from Brazil! You helped me a lot!
Glad to hear that!
Excellent analysis - I had this question @ top of mind….
Thanks!!!!!
Glad it was helpful :) I appreciate you taking the time to give some feedback!
BDCs will be a key part of my investing strategy going forward
I like them too. But I don't want to overweight them (or any asset class for now). Seems odd to me that they are completely ignored by the financial media and most investors. They aren't perfect but they have their place in an income portfolio.
Excellent video and very timely information about BDCs. Thanks again !!!
Glad you enjoyed it!
Thank you for the clarification on the expense ratios that’s super helpful
Glad it was helpful!
@@armchairincomechannel I’ve always wondered why the expense ratio was so crazy. My assumption was it was due to taxes on the fund side.
Very informative and great job at presenting!!
Thanks for watching :)
Eye on PBDC,. Accumulating BCAT, holding some BSTZ...Hi yields. Good video thanks.
Thanks for sharing, and glad you found the video helpful.
Another great video, and the link to Juan’s article on Seeking Alpha was a nice read. Looks like a roller coaster for the next few weeks, let’s all hold on for the ride, in the market 👐🤓
It will be an interesting few months!
To me the biggest concern is not interest rate - but it is one of the concerns because it’s directly linked to NII. I may have a different outlook on the recession risk, but defaults risk is far more important to consider than interest income. The other thing is the bullish sentiment overall. The “private lending” seems to attract a lot of supply of money due to the strong performance over bonds in recent history. There is potentially a supply/demand issue here that may lead to overreaching into lower quality loans. I have a 10% allocation in credit - including real estate lending, BDCs and CLOs. Happy to hold this allocation but hesitant to overweight at this time.
Yes, defaults are important. If rates remain high for long enough, the default rates are at risk of increasing to the point where they have a material effect on the balance sheet. Same outcome if there's a recession. As much as I like BDC's and fixed income, moderation and diversification are the best practice.
Good episode again on ETF I know less about! Good works !
The best ETFs aren't necessarily the most popular ones.
@@armchairincomechannel good to know …🤔🤔🤔 Keep up the good works ! 👌👌
Thanks for another informative video!
My pleasure! Thanks for watching.
I read somewhere that individual BDCs have some type of management fee associated with them. From my understanding these fees indirectly affect the investor. I don’t know about ones that are externally managed. Would they have a higher fee?
Most BDC's are externally managed and the management company charges a fee to do that. MAIN is an exception; it's internally managed. Fees have a small effect on the profitability but I wouldn't simply buy the BDC with the lowest fee. It's more about which management team is best at underwriting and managing loans.
Mr Market is not worried about Economy doing a soft landing.. it's covering the possibility of a hard landing or even a crash landing.. Long term holders will see it as a buying opportunity ... could sell Oct 20 puts and potentially pick up ARCC for 19.70 then.. or keep the premium for a yield higher than the common pays.
Thanks for sharing your strategy on ARCC. I agree that picking it up on a dip would be nice.
🎉 That was really interesting stuff (yes, I own BIZD).
Glad you enjoyed it!
Spot on......once more😊
Thank you so much 😀. I always appreciate your feedback!
Is it a good idea to buy into SVOL at its current price? do to its payout, Or wait for a pull back?
I can't offer financial advice, nor do I try to time the market. The "best" time to buy SVOL is when the VIX is high and decending and the futures curve is in Contango. This rarely happens. I just bought gradually over time and didn't look for special opportunities.
for snowball, do you think that the starter is good enough for most people, or do you think the investor package would be better?
I think the Starter is enough for most people. If you need to create more than 1 portfolio, then you can always change to the Investor package.
Hi , can you please do rate effects Vedio on Mortgage Reits. Lot of my money struck there and looking for some advice.
Thanks for your suggestion. Mortgage REIT's are a much smaller part of my portfolio but you've raised an important question!
Thanks for the vid.
Thanks for watching!
Whats your take on Goldman Sachs BDC? I saw that someone mentioned it above. They are like other BDCs facing some difficult times at the moment
I think you're referring to GSBD. There are about 50 BDCs and I don't follow all of them. I haven't looked into that one. The newsletters I follow haven't had anything great to say about it so I didn't spend time on it. I think BDC's are doing fine at the moment. Their month to month price fluctuations don't necessarily reflect the state of their businesses.
Started buying both BCAT and ECAT and noticed that only ECAT fell a tiny bit in the big Sept 6 mini crash. BCAT barely moved and ECAT maybe dropped .20-.25. I love the 21% payouts and think these two are the highest paying CEF I’ve owned (except for CLM and CRF 21% plus the NAV drip). Not sure how falling rates will affect these two so as usual I will DCA into them. I only hold two BDC’s ARCC and HTGC,
BCAT and ECAT are interesting, especially given the recent distribution hikes. Still researching them...
@@armchairincomechannel looks like big heavy corporate bond funds, one green focused. These dividends sure jump big and wonder if they might be lowered just as quickly! Not the best thing for investors wanting stability in income! lol!
ECAT/BCAT have been a very solid addition. We will have to see if they keep the 20% for 2025. I been adding back into PDO/PDI/PTY (Pimco's). Expecting these to grow NAV back to pre-Covid prices with the interest reduction. Plus, GIAX (FEPI Type) looks very interesting. They hold Vanguard/QQQ/actual stock. First ETF I have seen holding Vanguard. Still new...seems solid.
@@mark1BlackFox I used to own PDI for a really long time but sold out in May of 2022 and haven’t rebought. Keep thinking about it though. lol. Got sidetracked with YieldMax offerings. I have too much in CDs and money markets that I have to start moving over to the equity side.
I'm not concerned at all, even with high interest rates the best BDCs have lower default rates than banks. With lower rates, it will only get better and they'll be able to make more deals.
Thanks for your feedback and also for watching! I'm optimistic about BDC's too.
One red flag I have been investigating recently is the value on the balance sheet of those BDCs which hold equity or warrants as well as debt. I believe that the valuations on these remain inflated and will continue to be written down. Less of an income issue but will degrade the BDCs balance sheets and raise their cost of capital. Something to watch for.
That's a good point. Those tend to be the most volatile elements of the balance sheet...huge upside, or downside.
I've been curious. If you were to buy just 10 ETFs and hold them forever what would they be? Many of us don't have the discipline to continue to buy and sell.
I don't think that "set and forget" investing is applicable to high yield income investing. That approach works best for investment strategies that can rely heavily on indexes that rebalance themselves. eg. VOO for growth or SCHD for dividend growth.
@@armchairincomechannel This might be a good video topic. I would argue that you could buy and hold SVOL, PFFA, SPYI, QQQI, PBDC, UTG, IWMI, etc... The primary reason people lose money is panic selling, so a buy and hold strategy works best for most people.
Is the expense ratio of PBDC actually 13.94%?
sorry, you mentioned it around the 9 minute mark! my bad
No worries! These crazy numbers cause a lot of confusion.
Great video
Glad you enjoyed it
Good video.
Glad you liked it!
Bottomline: Buy Ares Capital
I like it too :)
@@armchairincomechannel 1.2 billion net income for bdc is massive
I personally completely sold out of all my REITs,The writing is on the wall Commercial Real Estate is going the same way of the Shopping Mall. They are going to great lengths to force people into these buildings which won't work.
But what about residential, industrial and healthcare reits?
@@raghavendrasunku9233 I have ETFs already exposing me to healthcare,The other 2 im bearish on and could careless about getting the potential "Upside" in them as the downside risk far exceeds any gain possible to me.
If you're referring to this BDC video, BDC's don't invest in real estate. More generally, I'm avoiding office REIT's. Multi family, industrial, and a few other segments will do well over the long term.
There will always be demand for those, it's just a matter of pricing.
ARCC did well in 2019. But what about 2020? Answer: it went from $20 to $10... It eventually recovered, but it's worth pointing out that there's a lot of drawdown risk in BDCs since they are leveraged and lend to junk quality borrowers .
Didn't everything go down a lot in 2020? I take your point...BDC's went down further than the overall market! To own these you have to be willing to ride the volatility. If you're holding for income (rather than appreciation) then volatility is less of an issue as the point isn't to sell for a profit.
Not much validity because of the “global pandemic “ scare
Dude, everything went down in 2020... literally a pandemic.. Where were you? 😂😂😂
first
That was fast!
@@armchairincomechannel solid video
BIZD... I'm from the UK...Z...is pronounced...zed. This is the correct way 😂. I don't care about Americans being wrong...zee... such nonsense 💯🙏👌
Yes! I believe I gave both pronunciations in an attempt to please everybody (which is impossible to do)!