Ares Capital Corp. (ARCC) is one of the easiest ways to play into the business development companies, or BDC space, in the current environment of good technical drivers, fundamental and macroeconomic drivers, and the BDC placement in the investment cycle, says Jasper Burch, Research Analyst at Macquarie Group Limited.
“[ARCC is] the largest, probably the BDC with the best reputation, definitely one of the best management teams, very well established track record. It’s a fundamentally safe company to investors. That doesn’t mean you won’t get share price volatility, and there is always risk whenever you’re investing in equities, but the fundamental driver of the company makes it a very attractive easy way to play the space,” Burch said.
Another name Burch likes on valuation is Apollo Investment Corp. (AINV). AINV is a turnaround story, he says, and the company has brought in new management to move from lower-yielding securities into more senior, higher-yielding securities. The company currently trades on a lower valuation than peers, near book value.
“What I like about it is it’s a story where there’s a greater growth story in that name than I think lot of its peers, and the reason I say that is the major theme is recycling of the portfolio from a more of a liquid portfolio into a more high-touch middle market portfolio that should give better risk-adjusted returns,” Burch said.
“Those are the two that really stand out to me right now. Ares is a really large, safe, well established company, and then Apollo is a little bit more of turnaround in growth story, but still a very strong company,” he said.
Scale of Portfolio is an Advantage in BDC Industry
November 30, 2011