2024-06-13 19:09:37 ET
Summary
- Ares Capital has played out as per my expectation since my last update, as it has underperformed the S&P500 by 3.61%. I continue to be bearish on the BDC.
- On the plus side, deal activity is improving. Fundings, commitments and backlog + pipeline figures all show a healthy rebound.
- But Ares Capital's yields and net investment income margins are under stress. Increased competition is making it difficult for the BDC to get its fair share of high-yield investments.
- Valuations are on the premium end, reducing the margin of safety for buys. Technical analysis vs the S&P500 suggests continued underperformance ahead for multiple quarters to years.
Performance Assessment
Since my last update on Ares Capital ( ARCC ), ARCC has delivered a total return of +9.96% vs the S&P500's ( SPY ) ( SPX ) +13.57% over the same period, leading to underperformance over the market index of +3.61%. Thus, I deem my 'Strong Sell' view to have been correct....
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Ares Capital: Competition Weighs Down On Yields And Margins