FSK - Gladstone Investment: Benefits From Lack Of Rate Cuts
2024-04-12 16:47:34 ET
Summary
- The latest CPI report suggests a lower chance of interest rate cuts, which is positive for the Business Development Company (BDC) sector.
- Gladstone Investment is likely to benefit from a higher interest rate due to investment income growth in this environment as their portfolio contains floating rate debt investments.
- The current dividend yield is 6.8% and there's continued opportunity for additional supplemental distributions in this environment.
- GAIN has outperformed peer BDCs such as Main Street Capital & Ares Capital in total return since rates have risen.
Overview
The latest CPI report released, and the overall sentiment leads to a lower chance of interest rate cuts. The original probability of interest rate cuts before the March CPI report was around the 56% mark but has now dropped to an 18.5% chance of rate cuts by the end of June. While the market seems to be unpleased with this news, I think it's a great thing for the Business Development Company [BDC] sector and companies like Gladstone Investment ( GAIN ) will mostly benefit from a higher rate environment. We can see how the price of GAIN has an inverse relationship with the federal funds rate; GAIN's share price rose quickly when rates were near zero, but then dropped once rates rose....
Gladstone Investment: Benefits From Lack Of Rate Cuts