A reckoning is coming for unnecessary investment trusts
Investment trusts that don’t use their structural advantages will find it increasingly hard to survive, says Rupert Hargreaves
By Rupert Hargreaves
(Image credit: Getty Images)Share
Investment trusts are one of the best vehicles for creating wealth over the long term. Yet many of today’s trusts should not exist. Some are too small to make a difference and lack economies of scale. Others are not making the most of the benefits that the investment company structure offers.
An investment trust is set up as a public limited company, which has several advantages over other collective investment vehicles. Their closed-ended structure with fixed capital means that they don’t have to worry about money flowing in and out. That’s perfect for holding illiquid assets and also for borrowing money to improve returns. Meanwhile, the oversight provided by the board of directors should hold the investment manager accountable if the trust underperforms for too long.
However, this structure has two obvious drawbacks. One is overheads. Having an independent board of directors is expensive. Valuing and managing illiquid assets can also be costly and time-consuming. Paying for active investment managers has never been cheap, and it’s even more dear if the trust has an in-house management team, rather than sharing a manager who works across several funds. The combined impact of these costs means that many smaller trusts look expensive to their larger peers or open-ended funds with comparable strategies.
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The other is that the share price can – and usually does – deviate from net asset value (NAV). So shareholders cannot be sure if they will be able to sell at close to the value of the assets. In contrast, open-ended funds and exchange-traded funds (ETFs) trade at NAV.
Investment trusts need to start taking their advantages
So trusts need to employ their advantages to justify the disadvantages. Take leverage, which is one reason why trusts have tended to outperform similar open-ended funds over the long term. Trusts can usually borrow at highly attractive rates for long periods. The Scottish American Investment Company (LSE: SAIN), for example, issued three lots of loan notes several years ago, with maturities extending out to 2049 at rates of 2.23% to 3.12%. Yet most trusts just don’t make the most of this opportunity.
Nick Train’s Finsbury Growth and Income (LSE: FGT) has gearing of just 2.4% despite its scale and the manager’s conviction. So investors, managers and boards need to ask if the strategy would work as well in an open-ended structure. For an equity strategy that uses no leverage and invests in liquid stocks, the answer is likely to be yes. If so, there’s no need to operate with the added costs of the investment trust structure. The news that SmithsonInvestment Trust (LSE: SSON)will convert into an open-ended fund is a good example of this lesson being accepted.
Investment trusts must act soon
The market is slowly getting to grips with these realities. There were five mergers of similar trusts in 2025, with one more planned for early 2026, according to the Association of Investment Companies. Seven trusts and real estate investment trusts (Reits) were privatised – although long-term investors were not happy to see some of them go (eg, BBGI Global Infrastructure). There were 14 liquidations in 2025, the highest number since 2016; one of these, Middlefield Canadian Income, was a conversion to an exchange-traded fund (ETF).
To their credit, some trusts are making changes. There were 40 examples of trusts reducing their fees this year, compared with 32 in 2024 and 26 in 2023. There is more focus on closing discounts, albeit with mixed results. But many need to do more while they still have the chance.
Investors should consider if the trusts they own are worth their place on the market. If they’re not, it may be time to find something better – unless there is a realistic chance of activists forcing a restructuring that could bring windfall gains.
Hey terrific blog! Does running a blog similar to this take a massive amount work? I have very little understanding of coding however I was hoping to start my own blog soon. Anyhow, should you have any ideas or techniques for new blog owners please share.I know this is off topic however I just needed to ask. Thanks!
There needs to be some time spent researching topics for the blog and blog maintenance moderating comments. No coding needed, if you can copy and paste you are good to go. GL
Tech volatility has surged in Q4, hammering AI and data center names, creating pockets of opportunity for buyers.
Data centers sit at the heart of AI infrastructure, with the market forecast to grow about 25.6% annually through 2034.
SA Quant has identified four key data center infrastructure stocks with Quant “Strong Buy” ratings and excellent factor grades that have fallen off their 52-week highs.
I am Steven Cress, Head of Quantitative Strategies at Seeking Alpha. I manage the quant ratings and factor grades on stocks and ETFs in Seeking Alpha Premium. I also lead Alpha Picks, which selects the two most attractive stocks to buy each month, and also determines when to sell them.
imaginima/iStock via Getty Images
AI Rally Stalls on Bubble Fears
Tech sector volatility has surged in Q4 of 2025, as discussed in my recent piece, impacting AI names that have had incredible run-ups year-to-date. Information technology has been one of the worst-performing sectors on a trailing one-month basis, as profit-taking in mega-cap leaders and uncertainty over Fed rate cuts caused a rise in index volatility. Tech stocks experienced strong sell-offs despite solid fundamentals, as investors questioned whether the current levels of AI capex would translate into earnings.
Tech has been the second-worst-performing sector on a trailing one-month basis.
SA Premium
Seeking Alpha: As of 12/18/2025.
The Nasdaq slid as much as 2% on Dec. 12, weighed down by Broadcom’s (AVGO) margin warning and a delayed Oracle–OpenAI (ORCL) data center timeline. Companies supporting data centers have suffered in tandem, with recent sessions marked by declines. Even as many suppliers and operators remain long-term beneficiaries of the AI boom, their shares have faced short-term pressure, creating opportunities in a notoriously stretched sector.
Data Centers: The 21st Century Gold Rush
Back in October, I highlighted three stocks driving the next wave of data center expansion. Data centers are the backbone of the AI ecosystem, housing the servers, GPUs, and other infrastructure required to power its massive computational workloads. The global AI data center market is projected to grow at a 25.6% CAGR through 2034, and McKinsey forecasts that AI workloads will account for roughly 70% of total data center demand by 2030.
There’s an old saying: “During a gold rush, sell shovels,” with the idea being that it’s often more profitable to supply the tools and services rather than chase the opportunity itself. In the current AI boom, that means focusing on data center component providers instead of downstream hyperscalers. This approach has paid off in the Alpha Picks portfolio, where one of the biggest winners, Celestica (CLS), a key supplier of data centers, has returned more than 900% to the portfolio. The data center market is vast, supported by a broad ecosystem of vendors that ensure operations run smoothly. Below, I’ll highlight four top Quant-rated data center stocks that have recently pulled back amid market volatility.
How I Chose My Top Data Center Infrastructure Stocks
The data center stock universe is drawn directly from the largest data center ETFs, which are built by professional portfolio managers and analysts whose role is to identify leading companies in the space. I aggregated all the securities in those ETFs and loaded them into the Seeking Alpha Quant Screener, which ranked the stocks using our quant metrics and emphasizing names that score well across factor grades. Finally, using the Seeking Alpha Stock Screener, I evaluated stocks trading off their 52-week range to pinpoint Strong Buys that have recently pulled back amid the latest bout of volatility.
Quant Sector Ranking (as of 12/19/2025): 18 out of 537
Quant Industry Ranking (as of 12/19/2025): 5 out of 68
Market Capitalization: $327.33B
Quant Rating: Strong Buy
AMD sells high‑performance CPUs, GPUs, and networking chips for cloud, enterprise, and AI data centers. As a core upstream hardware supplier, AMD provides the compute that sits at the heart of data center infrastructure, enabling processing and data movement. In its Q3 earnings call, management emphasized that data centers are a main growth area:
“Our record third quarter performance marks a clear step up in our growth trajectory as the combination of our expanding compute franchise and rapidly scaling data center AI business drives significant revenue and earnings growth.”
The stock has suffered amid broader sector volatility, declining nearly 8% in the last month. However, this has only added to AMD’s value story. Its grade has improved from a D three months ago to a C, supported by a forward PEG of just 1.2x (a 30% discount to the sector median).
AMD’s remaining fundamentals are sound, with an EBITDA margin that is 83% above the sector median and ‘A’ range grades across nearly every growth category. Notably, the EPS FWD long-term growth (3-5Y CAGR) is 166% above the sector median, demonstrating confidence in the company’s long-term trajectory.
AMD Growth Grade
SA Premium
AMD is a strong data center growth play, supported by robust profitability and an improving value profile that together underscore the company’s quality.
Quant Sector Ranking (as of 12/19/2025): 14 out of 537
Quant Industry Ranking (as of 12/19/2025): 1 out of 22
Market Capitalization: $6.83B
Quant Rating: Strong Buy
APLD operates data centers built to house infrastructure for both AI and blockchain workloads. Despite the stock’s recent pullback, the company has delivered a remarkable 172% return over the last year. APLD recently entered a credit facility to fund early-stage planning and construction of new AI-focused data center campuses, which will directly support its growth. From a Quant perspective, the company delivers 129% forward EBITDA growth compared with 12.32% for the sector. While Applied Digital’s earnings remain negative, the company’s financial trajectory is improving as major data center contracts begin to ramp up.
“With the CoreWeave lease supporting roughly half a billion in annual net operating income and Polaris Forge 2 poised to significantly increase that figure, we are laying the foundation to reach our stated goal of $1 billion of NOI run rate within five years. And this is just the beginning,” said APLD CEO West Cummins.
Despite robust momentum, the company’s valuation grade improved from an ‘F’ three months ago to a ‘D’ today. In addition to improving fundamentals, the company showcases analyst enthusiasm, with five FY1 Up Revisions in the last 90 days vs. two downward.
APLD Earnings Revisions Grade
SA Premium
Applied Digital’s strategic presence in North Dakota positions the company to capitalize on the region’s low construction and operational costs, abundant energy, and a favorable climate that keeps its data centers cool. These factors, combined with the company’s excellent fundamentals and recent pullback, make APLD a solid data center stock.
Quant Sector Ranking (as of 12/19/2025): 28 out of 538
Quant Industry Ranking (as of 12/19/2025): 4 out of 19
Market Capitalization: $16.21B
Quant Rating: Strong Buy
Fabrinet is an upstream hardware player in the data center market, providing advanced manufacturing and packaging services for complex optical and electronic components. In addition to a strong foothold in the data centers, the company also serves a diverse set of industrial markets, including automotive applications and advanced medical equipment.
The company delivered a record Q1 FY26, with revenue up 22% year-over-year to $978 million, driven by strong telecom demand and its high-performance computing category, which management expects to scale rapidly in Q2. This growth has translated to exceptional profitability. FN offers an ROE that is 188% above the sector median while boasting an incredible $8.51 in cash per share.
FN Profitability Grade
SA Premium
The stock’s ‘A’ grade momentum has been a steady march forward, returning 77% in the last six months alone. Despite the gains, the stock still trades in line with the sector. Although Fabrinet is broadly higher over the past month, its more recent dip offers a more attractive entry point for those looking to initiate a position.
Quant Sector Ranking (as of 12/19/2025): 43 out of 615
Quant Industry Ranking (as of 12/19/2025): 1 out of 40
Market Capitalization: $71.96B
Quant Rating: Strong Buy
JCI’s cooling and controls solutions are critical for managing the energy use of high‑performance AI workloads, helping operators cut power and water consumption while maintaining uptime. In its Q4 earnings call, management cited data centers as one of the fastest‑growing verticals in its record backlog, contributing to 9% growth in the Americas segment in Q4.
The company delivered strong profitability, with segment margins expanding and adjusted EPS growing double-digits above guidance. From a Quant perspective, highlights include an incredible $2.55B in cash from operations vs. the sector’s $390 million and a net income margin that is 116% above the sector.
JCI Profitability Grade
JCI Profitability Grade
The company boasts a record backlog of $15B and improved free cash flow, suggesting solid forward growth potential. While JCI still screens as somewhat stretched on several traditional valuation metrics, it currently trades at a 16% discount on a forward PEG basis, suggesting the shares may have further room to run. Underpinned by solid fundamentals and a robust pipeline, JCI offers investors focused exposure to the fast‑growing data center service and maintenance market.
Concluding Summary
Tech has come under pressure in Q4 2025, as profit‑taking and Fed uncertainty have fueled volatility. AI leaders and data center names have sold off sharply despite solid fundamentals, creating an opportunity in a segment with notoriously stretched valuations. SA Quant has identified four top Quant-ranked data center stocks that have fallen off their 52-week highs. Advanced Micro Devices, Inc., Applied Digital Corporation, Fabrinet, and Johnson Controls International plc offer a mix of strong profitability, value, growth, momentum, and earnings revisions for investors looking for exposure to the data center ecosystem in the recent pullback.
Having done your research you know that CTY have paid an increased dividend for over 50 years.
You wanted a ‘secure’ dividend just in case your research leads you to buy at the wrong time.
Current yield 4%, because it’s in lots of peoples most wanted shares list, it trades at a small premium.
If you had bought under 300p after the covid crash the yield was 6.3%.
You decide as the price rose and the yield fell to re-invest the dividends elsewhere in your Snowball.
The current yield on your buying price is now 7% but the running yield is now 4%.
Without taking a very high risk, with your hard earned, you would have achieved the holy grail of investing, in that you can take out your capital and re-invest in a higher yielder and also receive income from a share that sits in your Snowball at zero, zilch, nothing cost.
You now have another share in your Snowball, providing income to re-invest and you would be on the way to
Once again Royal London Short Term Money Mkt Y Acc claims the top spot. The fund offers a “cash like” return through investing in very low-risk bonds that have short lifespans. Its dividend yield stands at 4.1%.
While the level of income money market funds are generating is attractive and ahead of inflation, bear in mind that yields will fall as and when UK interest rates are cut further. As our recent Bond Boss columnist pointed out, “cash is unbeatable for low volatility and minimal risk of drawdowns. But that safety comes at the cost of lower returns. Short-dated corporate bonds, by contrast, can offer a yield increase for only a slight increase in risk.”
which has proven very popular among ii customers over the past couple of years. It has raised its dividend ahead of RPI inflation every year since launch in 2013. That income consistency, a dividend yield of 10.8%, and a discount of -31.5%, are all attracting investors. This is despite notable losses of -18.2% and -20.5% over one and three years, and a small gain of 3% over five years, with its investment strategy rocked by UK interest rates rising from rock-bottom levels to peak at 5.25%.
As our recent feature explained, Greencoat UK Wind’s investment approach was recently hit by a curveball of proposals to change the inflation indexation of legacy subsidies. The changes would align indexation with Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI), altering the terms of contracts that underpin billions of pounds of investment in wind, solar and other clean energy projects.
In fourth place is one of two new entries this week – Scottish Mortgage Ord SMT Its shareholders will be watching with interest regarding recent reports of SpaceX, Elon Musk’s space exploration company, possibly listing on the stock market next year. The private company is SMT’s top holding, and 8.2% of its assets. The trust holds 29% in private companies, with the remainder in publicly listed companies. Its aims to identify, own and support the world’s most exceptional growth companies.
In common with other renewable-focused trusts, its performance has been hit by higher interest rates. It is up 2.5% over one year, with heavy losses of -30.8% and -28.5% over three and five years. It is trading on a high dividend yield of 12%, while its discount stands at -40.9%. The trust has a continuation vote next year, with the board recently saying that it may not recommend the trust continuing in its current form.
and Artemis Global Income I Acc. The former mainly focuses on FTSE 100 dividend-paying companies, while the latter has a value-investing approach and a low weighting to the US, which only accounts for 25% of the portfolio.
Dropping out of the rankings are private equity trust 3i Group and global tracker Vanguard LifeStrategy 100% Equity.
Ian Cowie: my investment trust winners and losers in 2025
Our columnist discusses his best performers, the laggards, and stresses the importance of diversification.
18th December 2025 09:06
by Ian Cowie from interactive investor
Bad news in almost every TV bulletin might make even the most optimistic investor fear the worst for stock markets in 2026. But many “experts” were equally gloomy at the start of 2025 before share prices surprised on the upside.
For example, the average investment trust turned £1,000 into £1,103 over the year to date, the week before Christmas. That’s pretty good going when only £1,038 would have been needed to keep pace with inflation, as measured by the Retail Prices Index (RPI) in the year to November, as published on Wednesday (17 December).
Less happily, with scant sign of any Santa rally so far, the average investment trust shrunk the same starting capital into just £982 over the last quarter – or three-month period – according to independent statisticians Morningstar.
Never mind the generalities, your humble correspondent is very happy with the performance of the investment trusts in my “forever fund” over the last year and the last quarter. To be specific, no fewer than 13 of the 20 closed-end funds in which I have invested part of my life savings beat the annual average mentioned above; and 17 of them did better than the average over the last quarter.
The laggards
But it certainly wasn’t all sweetness and light, with wide variations in returns demonstrating – once again – the importance of diversification to diminish our exposure to the risk of capital destruction. Speaking of which, step forward Greencoat UK Wind
which suffered a perfect storm in 2025 to become my worst investment trust over the last year and last quarter.
This renewable energy infrastructure specialist shrank £1,000 on 1 January into just £838 over the year to date and £896 over the last three months. Ouch!
Gale-force headwinds that battered this £4.1 billion fund included rising costs, falling electricity prices and idiotic windfall taxes imposed by the Conservatives and maintained by Labour. There are even rising fears, fanned by folk who hate wind farms, that these turbines might not last as long as originally hoped in the very hostile environment of the North Sea.
where my hopes that the longstanding outperformance of the mega-cap or very big technology shares might trickle down to corporate tiddlers. On the contrary, JUSC turned £1,000 into £852 over the year.
was my third-worst investment trust in 2025. It failed to live up to its name and turned the same £1,000 starting capital into £896 by the week before Christmas.
The winners
But I don’t intend to sell any of the above, partly because of what happened at the other end of the performance spectrum this year. Polar Capital Technology Ord
a self-descriptive fund in which I have been a shareholder for more than a decade, continued to benefit from the artificial intelligence (AI) boom, boosting £1,000 on January 1 into £1,324 as I write.
did even better, finishing the year with £1,364 on the same basis, as it bounced back to some extent after a decade of capital destruction. To be fair, only the kindest-hearted shareholders in INOV are likely to restore its former “star fund manager” Neil Woodford to their Christmas card lists on the basis of its very partial recent recovery.
which is my most valuable investment trust and the fifth-biggest among 55 shareholdings in the forever fund, turned the same starting capital into £1,424. EGL’s diversified portfolio of electricity distributors and generators – including nuclear power – benefited from rising demand by AI data centres, among others.
turned £1,000 into an eye-stretching £1,529 during 2025. BRLA has bounced back after years of shrinking returns, as a collateral beneficiary of the trade war between America and China. The latter is buying more of the hard and soft commodities it needs from Brazil and less from the US.
Whether that is likely to continue remains uncertain, with the probabilities changing almost daily, alongside erratic pronouncements from the White House. While the mood swings of US President Donald Trump remain unpredictable, the last year showed investment trust shareholders how previously disappointing shares can still surprise on the upside.
None of us knows what will happen next year but 2025 demonstrated how our worst fears are rarely realised. Short-term stock market shocks need not prevent long-term shareholders from realising capital growth and income from a diversified portfolio of investment trusts.
Ian Cowie is a freelance contributor and not a direct employee of interactive investor.
Life-Changing Dividends: 7 BDCs Paying Up to 19.6%
Brett Owens, Chief Investment Strategist Updated: December 19, 2025
The manic market has been dumping business development companies (BDCs) left and right. Let’s talk about a seven-stock BDC portfolio (yielding 13.5%!) that is poised to bounce back when sanity returns.
BDCs, which lend money to small businesses, are on the “outs” with the Wall Street suits after countless soft jobs reports. The spreadsheet jockeys fret about an unemployment-induced economic slowdown and miss the real story: small businesses are making more money than ever thanks to AI.
Here is what’s actually happening in the Main Street economy:
Employers—especially nimble small business owners—are implementing AI to streamline and even run their operations.
With AI tools, fewer humans are needed.
So, we are seeing soft jobs reports as companies rationally prioritize automation over human hiring.
Small business profits are popping. While the unemployment numbers scream slowdown, the actual economy is booming. Check out the Atlanta Fed GDPNow’s most recent estimate—it’s solidly over 3%!
Atlanta Fed Says Economy is Cookin’
That’s no recession—it’s an efficiency boom! And a tailwind for this 13.5% portfolio:
Why not just buy any BDC fund?
It’s a competitive industry—one that creates more individual losers than winners. Buying a fund guarantees we own dozens of those losers.
We’re better off picking “the right” BDCs right now for the current interest-rate environment. BDCs tend to deal heavily in floating-rate loans. When the Fed cuts its target interest rate, it limits what BDCs can charge on those floating-rate loans, which lowers earnings.
But lower rates also bring lower financing costs for small businesses. This increases demand for new loans. Good for the BDC business. We’ll keep these forces in mind as we review seven BDCs paying us between 9.4% and 19.6%.
Sixth Street Specialty Lending (TSLX, 9.4% yield) is a standard-fare BDC. It prefers to invest in companies of between $50 million and $1 billion in enterprise value that generate between $10 million and $250 million in annual EBITDA (earnings before interest, taxes, depreciation, and amortization).
TSLX is pragmatic; it has an idea for its optimal deal partner, sure, but it also understands that they all can’t be gems. It’s pretty transparent about this fact, too, as we can see from this breakdown of some of its portfolio companies.
That portfolio is growing. While TSLX has hovered around 110 to 115 companies for the past few quarters, that number jumped to 145 as of Q3—the vast majority of which were structured credit investments that were smaller than the company’s typical deal size.
Sixth Street is also typical in that it primarily deals in first-lien debt (90%), most of which (96%) is floating-rate in nature. TSLX will feel the pinch as the Fed continues cutting rates.
But it’s also well-positioned to power through the pain. Sixth Street has frequently outpaced net investment income (NII) estimates, produced some of the best returns, and more-than-adequately covered the dividend. That dividend is a regular-plus-supplemental model, which has become increasingly popular among BDCs given rate uncertainty. Regular dividends account for most (8.4 points) of TSLX’s yield, with specials the remaining 1 point.
Sixth Street has long been one of the BDC industry’s best-run companies, and that shouldn’t change much despite a shake-up at the top. Current CEO Joshua Easterly will step down as CEO effective Dec. 31, 2025, to be replaced by Bo Stanley, who is currently serving as co-CEO. But Easterly will remain chairman of the board and continue to serve on TSLX’s investment committees.
Gladstone Investment (GAIN, 10.8% yield) dishes a double-digit yield and a monthly dividend.
This BDC takes on lower-middle-market companies that generate EBITDA of between $4 million to $15 million annually, favoring firms with a proven business model, stable cash flows and minimal market or technology risk.
It’s an outlier in a couple of ways: a small portfolio, for one, at just 28 portfolio companies, but also a much bigger hunger for equity than the average BDC. Gladstone points out that BDCs traditionally have equity exposure of 5% to 10%.
Gladstone is less exposed to interest-rate moves. This supports GAIN’s “buyout” strategy. Gladstone Investment typically provides most (if not all) of the debt capital along with a majority of the equity capital. Its debt investments allow it to pay out a still-high regular dividend, but then it also pays out supplemental distributions when they realize gains on equity investments.
Those supplementals make up a large portion (about 3.8 points) of the yield, and they’re awfully variable. Gladstone Investment paid out $1.48 per share across five supplemental distributions in 2023, but then just 70 cents across 1 extra payment in 2024, and 54 cents in a single supplemental in 2025.
Recently, GAIN has been among the top BDCs we can buy. And yet, its valuation remains reasonable—the stock trades at a 3% premium to NAV.
Crescent Capital BDC (CCAP, 12.3% yield), like many other BDCs, is paired with (and enjoys the resources of) a larger investment company—in this case, below-investment-grade credit specialist Crescent Capital Group. Its wide 187-company portfolio, which boasts a median annual EBITDA of about $29 million, spans 18 industries. We also get double-digit exposure to international companies (mostly Europe with a little Australia). It’s a diverse portfolio—but one that’s easily affected by Fed rate changes given that its deal mix is 90% first lien and 95% debt overall.
CEO Jason Breaux acknowledged the danger in the company’s most recent earnings conference call: “Looking ahead, we anticipate that a lower base rate environment may gradually reduce portfolio yields and place some pressure on net investment income.” But when pressed on the dividend, he added “I think for the immediate near term, we do believe that we are going to cover our base dividend with NII.”
But it still merits a close watch: A few analysts’ earnings estimates for 2026 fall below the dividend. That would help explain the stock’s current 23% discount to NAV, as would its 15% loss including dividends year-to-date.
Trinity Capital (TRIN, 13.5% yield) is a growth-focused BDC with a bleeding-edge portfolio of 178 companies including the likes of quantum computing leader Rigetti Computing (RGTI), spaceflight safety firm Slingshot Aerospace, and 3D orthodontics firm LightForce.
TRIN is not only highly diversified in headcount, but also in how it does its deals.
Debt is still Trinity’s most prominent investment type, but at about three-quarters of the portfolio at fair value, that’s a smaller allocation than many other BDCs. (Equipment financings make up another 15%, with the rest filled out by equity and warrants.) Floating-rate is also a smaller-than-most share, at a little more than 80% currently.
Trinity is a lot like Sixth Street in that it’s an industry outperformer with good dividend coverage—and a premium valuation, at 14% more than its NAV right now. A silver lining? That’s less frothy than the 22% premium it commanded just a few months ago.
FS KKR Capital (FSK, 14.5% yield) is one of the largest publicly traded BDCs—a $4 billion business funder that can call upon the resources of its managers: alternative investment manager Future Standard and global private equity giant KKR (KKR).
Its portfolio spans 224 companies across 23 industries including software/services, health care equipment/services, commercial/professional services, capital goods, media and more.
This is an extremely diversified portfolio by investment type—debt, which is mostly senior secured (and a little less than 90% floating-rate), is just less than two-thirds of the portfolio at fair value, and it has significant positions in asset-based finance, preferred equity, common equity, and a joint venture, Credit Opportunities Partners JV.
FSK delivers one of the highest yields in the space and trades at one of the deepest discounts to NAV, at just 69 cents on the dollar. However, FSK would be yielding more if it weren’t for a deep dividend cut.
FS KKR had been paying out a 64-cent base and 6-cent supplemental for nearly two years. Until November, when the company announced a new quarterly distribution “strategy” for 2026 that targeted a 45-cent base. A 30% cut—yikes.
Much of FSK’s problem over the past few years has been bad loans. Non-accruals (loans that are delinquent for a prolonged period, usually 90 days) were a high 5% of the portfolio at cost. Perhaps the portfolio is now “falling out of the basement window” as this actually represents an improvement recently.
Goldman Sachs BDC (GSBD, 14.7% yield) also cut its dividend in 2025. GSBD’s clear draw is the ability to harness $270 billion global investment bank Goldman Sachs (GS). Its manager, subsidiary Goldman Sachs Asset Management (GSAM), prefers companies with annual EBITDA of between $5 million and $75 million. GSAM has built a portfolio of 171 such companies across a more concentrated dozen industries or so (including software at nearly 20% of the portfolio at fair value).
In fact, quality issues—namely high non-accruals (loans that are delinquent for a prolonged period, usually 90 days) and dropping net investment income (NII)—finally forced Goldman Sachs BDC to cut its regular dividend by nearly 30% in February.
Investors skated until recently, when GSBD cut its regular dividend from 45 cents per share to 32 cents starting in Q1. Still, this translates to a nearly 15% yield at current levels.
Goldman Sachs BDC has been a dog since COVID—so much so that its mid-teens yield and 8% discount to NAV don’t seem enticing enough. That said, keep an eye on its portfolio. GSBD continues to shed its legacy portfolio and has become much more aggressive in dealmaking of late.
BlackRock TCP Capital Corp. (TCPC, 19.6% yield), managed by BlackRock (BLK) subsidiary BlackRock TCP Capital, invests in companies with enterprise values of between $100 million and $1.5 billion. It currently boasts 149 portfolio companies across more than 20 industries; debt is 90% of the portfolio at fair value, and 94% of those debt investments are of the floating-rate variety.
BlackRock TCP Capital says investments may include “complex situations requiring specialized industry knowledge.” That must be another way of saying “challenging,” which would explain TCPC’s struggles of late—since the start of 2023, TCPC has delivered a 30% loss with its massive dividend included while the BDC industry has returned a little more than 40%.
That massive dividend isn’t as big as it was a year ago, though. TCPC cut its dividend by 26% in early 2025, to 25 cents per share. Coverage was better, and it blunted some of that loss with a few specials from Q1 through Q3, but the company recently announced only the base dividend for Q4, which annualized would drop its dividend to closer to 17%. And further rate cuts could put that number in jeopardy.
If we wanted to gamble while BlackRock TCP Capital continues to exit its large non-accruals, we wouldn’t have to pay much to do so. TCPC has been on perpetual discount most of the year, currently priced at just 68 cents on the dollar.
My Can’t-Miss 11% Dividend for 2026
I love the diversification BDCs offer—I just don’t love some of the risk profiles I’m seeing right now.
But what if we could get this kind of diversification from a double-digit-yielding fund …
… that is also poised for stock-like gains in 2026 …
… and unlike these BDCs, it can’t wait for Jerome Powell (or the next Fed chair) to continue hacking away at interest rates?
But we launched this newsletter and our Monthly Dividend Paycheck Calendar income system because there are regular hardworking people looking for a steady income stream. Looking for something they can rely on. And we couldn’t have started too soon for some folks.
You see, contrary to what they try to tell us – the mainstream financial news, the government, the politicians – nothing’s changed for those of us looking for stable and steady income.
You and I both know it. Otherwise, you wouldn’t be a dividend investor.
Think about this for a moment: up until the financial crisis the conventional wisdom for retirement money was to put the bulk of your money in bond funds and CDs and live off the interest. Made sense when CDs were paying 5, 6, even 7%. Nice way to fund your retirement.
But that’s not the world we live in today even with recent Fed rate hikes.
What if the Fed Reverses Course to Raise Rates?
This is the second most common question I get from dividend investors through email and at speaking engagements.
I’ll share with you my response to that in two parts.
First, the Fed isn’t going to raise rates. Jobs numbers are lousy right now.
In fact, they just did the opposite recently and cut rates by a quarter point.
And second, today you’d be lucky to get much more than a 4% yield on a CD without having to tie up a tidy sum for a long time.
4%? Are they kidding us or just plain being greedy and rude?
Take your pick but either way that’s not even enough to cover inflation as we’ve experienced these past years, let alone let you “live off the interest” like so many of us were promised when we were younger.
And remember, that’s not going to change any time soon.
It’s only the last couple of years that we’ve seen the Fed finally raise rates for the first time since before the Great Recession and even then only modestly.
And you know what happened? The world didn’t end. Dividend stocks didn’t tank. And just recently the Fed decided to hold rates where they are… after dropping them 100 basis points in just the last half year.
Rates aren’t going back up any time soon. Period.
But let’s pretend they raise rates at every meeting for the next year and it’s not going to make one bit of difference for people like you and me. At least not for those of us who want passive income like we used to expect from CDs and bonds.
So the Fed raised rates a few times. Big deal. Are they looking for a pat on the back? Then they turned right around and lowered them… and then maybe they will raise them back up a bit. It’s just their way of trying to keep our economy from falling apart. But in the meantime they keep jerking savers around with yo-yo rates that at the end of the day don’t come near anything to provide income, let alone keep up with real inflation.
Post-COVID was the first series of serious rate raises in over two decades.
Why? Because just before COVID they couldn’t get inflation to go above 2% – to them inflation that’s too low is considered a bad thing, to those of us who shop for our own groceries it’s a completely different matter.
After COVID the economy was awash in extra dollars printed as stimulus checks and inflation was cranking like we hadn’t seen since the Carter years.
And since then they’ve paused then raised then paused and then raised a little and played the “wait and see” game. And then maybe they’ll raise them another 0.25% or maybe their drop rates by 0.25%. Who knows?
Let me spell it out: that quarter of a percent is 0.0025. And what has your bank raised CDs to? Back to the 5, 6, 7% we enjoyed a little before the 2008 crash? The kind of return you could actually live off of.
No, the banks raised them to still below 4%. And only begrudgingly. Can you live on 4% interest in a world where the cost of everything continues to go up?
And this will go on for years… maybe a decade or more.
Despite all the cheerleading, the Fed is too scared to do anything other than incremental rate tweaks of 0.0025… and with “wait and see” pauses between each rate change.
Frankly, it’s hard to imagine a day when we ever get back to those decent yields on CDs that we could live off the interest.
And worse, if you follow the news then you know that all of the talk is about cutting rates, not raising them.
We just have to face it: you’re never going to be able to go back to when you could park your money into CDs maturing in successive months (in banking terms this is called laddering) and take the cash out without so much as lifting a finger. I know that’s not what some people want to hear.
Growing up and even deep into our careers we were told to save our money, put it in CDs, and live off the interest. That’s what they told us… but that’s not an option now and it’s not coming back.
Sorry, but it’s the truth and I’m not the kind of guy to sugarcoat the truth. And the sooner we face up to the truth the sooner we can take action and do something about it… the sooner we can take control of our financial well-being.
And this is why the Monthly Dividend Paycheck Calendar is more important than ever.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
A £10,000 investment a year ago (17 December 2024) in Bluefield Solar Income Fund (LSE:BSIF) would have earned £955 in passive income over the past 12 months. But over this period, its share price has fallen by approximately a quarter.
If it can maintain its payout for another year, it means those buying £10,000 of shares today would earn £1,322 (38% more) over the next 12 months. This implies a yield of 13.2%, the highest on the FTSE 250.
Should you buy Bluefield Solar Income Fund
A cause for concern?
If I was a shareholder, I’d be concerned about the drop in Bluefield’s market cap. However, based on its latest internal valuation, the fall appears unjustified. It now means its shares trades at a 40% discount to the fund’s net asset value.
In other words, if the business ceased trading today and sold off its assets and cleared its liabilities, there would be around 26p a share – equivalent to three times its annual dividend – to give back to shareholders.
I appreciated that valuing non-quoted energy portfolios can be difficult, but this is an enormous discount. Can the fund’s accountants be so wrong?
And because of the management team’s frustration that investors don’t appear to value Bluefield’s 793MW of renewable energy assets as highly as they do, they have engaged advisors to explore the possibility of selling the group. If successful, it would probably mean the shares are de-listed from the London Stock Exchange.
An uncertain future
But there are no guarantees that a buyer will be found.
That’s due, in part, to the UK government’s decision to launch a consultation on how renewable energy projects should be subsidised in the future. Although there are no changes proposed to current contracts, it has caused uncertainty within the industry and makes investing in the sector riskier than might otherwise be the case.
Also, a higher interest rate environment means investors can earn a reasonable return elsewhere. This has resulted in many shares in the sector falling out of favour. And for the company, it makes it more expensive to borrow, which limits opportunities to expand.
If a sale doesn’t go through, the trust’s share price could continue to drift lower. But if it’s able to continue its recent policy of increasing its dividend each year, the yield will go higher still. Of course, there can never be any assurances given when it comes to payouts.
Financial year (30 June)
Share price (pence)
Dividend per share (pence)
Dividend change (%)
Yield (%)
2021
121.4
8.0
+1.3
6.6
2022
131.0
8.2
+2.5
6.3
2023
120.0
8.6
+4.9
7.2
2024
105.6
8.8
+2.3
8.3
2025
97.2
8.9
+1.1
10.2
Source: London Stock Exchange Group/company reports
Final thoughts
But I reckon the Bluefield Solar Income Fund has plenty going for it. Most of its income (84% comes from PV assets) is secured by long-term agreements and, although there will be some variability depending on how often the sun shines, the UK weather is generally bright enough to help the fund earn revenue all-year round. And with the price it receives for a significant proportion of its output guaranteed, it should be able to predict its earnings with a reasonable degree of accuracy.
If a buyer does come forward, it’s hard to see how the directors can recommend selling the group for much less than its net asset value. I think it’s worth considering but not with the aim of a quick sale.
