FSK - Ares Capital: The Investment Attractiveness Has Increased Despite The Share Price Run Up
2024-04-29 23:44:48 ET
Summary
- Entering 2024, I wrote an article comparing Ares Capital with FS KKR Capital.
- While I was bullish on both, I decided to give a slight preference to FSK, given the higher potential for alpha that could stem from the portfolio recovery process.
- So far, ARCC has clearly outperformed FSK.
- In this article, I capture the most important BDC/macro-level dynamics and contextualize them with the ARCC's investment case.
- I also provide some details on why I consider ARCC to embody the necessary characteristics to outperform the market.
Late December last year, I issued an article comparing the largest BDC - Ares Capital ( ARCC ) - with the second largest one, FS KKR Capital ( FSK ). While I was bullish on both BDCs, I preferred allocating slightly more in FSK due to the following reasons:
- FSK traded at a discount to NAV, while ARCC had an embedded premium.
- FSK's share price had been under the pressure for quite some time due to a notable build-up of non-accruals, which according to the Management was set to change.
- FSK's yield was several hundreds of basis points above that of ARCC.