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Gladstone Investment and Horizon: 2 BDCs Providing Investors Regular Income (NASDAQ:GAIN) – Seeking Alpha

allanswart

Written by Nick Ackerman. This article was originally published to Cash Builder Opportunities members on August 22nd, 2022.

Business development companies (“BDCs”) typically offer loans to smaller and…….

allanswart

Written by Nick Ackerman. This article was originally published to Cash Builder Opportunities members on August 22nd, 2022.

Business development companies (“BDCs”) typically offer loans to smaller and mid-sized businesses. These loans then provide regular income streams to investors holdings the shares of these investments. Since they are leveraged and invest in relatively riskier businesses, their dividend yields can be quite attractive. In my opinion, we are getting compensated well for the higher risks we take.

With interest rates rising, BDCs can be in an even better position to benefit from the current environment. Generally, BDCs are leveraged primarily via fixed rates and then invested in floating rate debt. Thus, when rates are rising, their income should also be rising while their costs can remain fixed.

Of course, as I mentioned, they are invested in generally riskier businesses. This would be due to lending to smaller-sized businesses. These businesses can often be the first to feel the pain of a slowing economy. They don’t have the balance sheets to be able to handle a slowdown in business. Some of these businesses can’t even afford to operate even in good times. That’s why we usually see underperforming positions in BDCs, no matter where we are in the economic cycle.

Today, I wanted to provide a quick update on two of the BDCs I hold. That would be Gladstone Investment (NASDAQ:GAIN) and Horizon Technology Finance (NASDAQ:HRZN). An opportunity to increase one’s positions in these names might be on the horizon if volatility picks back up. While they are both BDCs, they take quite different approaches to the investments they pursue.

The overall market has been a challenge in 2022. We’ve rallied off of the lows from June so far, but volatility is picking back up. Both of these funds have had their valuations in terms of discount/premium relative to their net asset value per share come down from where they were months ago. However, they’ve been again bouncing a bit higher along with the market in the last several weeks.

Here’s a look at the total return performance on a YTD basis of these two compared to the SPDR S&P 500 (SPY) for context. I’ve also included the VanEck BDC Income ETF (BIZD) for reference to the rest of the BDC group.

Ycharts

Horizon Technology Finance

Here is how HRZN defines itself:

Horizon is a …….

Source: https://seekingalpha.com/article/4539263-gladstone-investments-and-horizon-2-bdcs-providing-investors-regular-income

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