FSCO - Trying To Catch The BDC Bottom With A Pair Trade (Part 3) - Golub Capital Vs. FSCO
2025-04-25 14:14:03 ET
Summary
- BDCs have fallen significantly, making them attractive for long positions, but hedging with FS Credit Opportunities Corp. is recommended due to market volatility.
- Golub Capital BDC has a higher leverage and expense ratio, while FSCO offers a better-adjusted NII yield and lower leverage.
- FSCO's strong liquidity and predictable price movements make it an ideal hedge for investing in beaten-down BDCs.
- The strategy involves buying undervalued BDCs and using FSCO to protect against further declines, leveraging its stable performance.
As you likely know, until recently, many business development companies, or BDCs, were trading at overvalued levels. We discussed this in previous articles, mentioning names like MAIN, PBDC, CGBD, and many others. However, the situation has changed—BDCs have fallen significantly, and now most of them have negative z-scores. Our strategy is to take a long position in BDCs, but since we are cautious and there is a chance that the decline will continue, we are also looking for a way to hedge the risk. That’s why today we’re comparing GBDC and FSCO....
Trying To Catch The BDC Bottom With A Pair Trade (Part 3) - Golub Capital Vs. FSCO