Why Ares Capital Is Likely To Underperform The BDC Sector (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• I missed 1.48% of alpha creation in my last article on Ares Capital when I had downgraded it to a hold. Yet, I still downgrade ARCC to a 'Strong Sell':
• The chances of a rate reduction by the Federal Reserve are increasing, which could benefit the BDC sector, particularly BDCs with greater cyclical exposure.
• Ares Capital is not well-positioned to benefit from easing rates due to its defensive orientation and predominantly floating investment yields.
• The relative performance outlook of ARCC vs the BDC sector via the VanEck BDC Income ETF confirms the fundamental view.
• Overall, I have a strong relative bearish view on ARCC vs BIZD primarily and also the S&P 500. This is not a strong bearish view of the absolute return prospects of ARCC.

Read the full article here.