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We will see how the market develops in light of the events in the Middle East, but it may be useful to take a snapshot of the current situation in terms of the price/NAV ratio of the securities in my portfolio. I will only disregard the ETFs and ETNs in the Giotto Portfolio, which are quoted at NAV and will therefore not be taken into consideration in this brief analysis of the price/NAV ratio.
I would suggest that investors capitalize on these underlying tailwinds (opportunities) by simply remaining focused on high-quality BDCs, which are not only more protected than other peers from potential credit risk headwinds but also carry notable dry powder to scoop up more lucrative investment opportunities.
The market may not be perfectly efficient at all times, but it is not completely irrational either, and when it prices a stock at such a yield, it is its way of saying that the stock is facing severe risks that more often than not will lead to disappointing results.
I ranked all member stocks of the S&P 500 by their earnings yield [EBIT / Enterprise Value] from highest to lowest. I then ranked all of the stocks by Return on Capital Employed, also from highest to lowest. Both rankings were combined and sorted in ascending order, with the earnings yield being the secondary ranking criterion. I did this for each stock between 2016 and 2025, using year-end reported values. The best-ranked stocks were chosen for inclusion in various test portfolios comprised of different iterations of the highest-ranked stocks.
Q4 BDC performance was divergent, with outperformance driven by avoiding structurally weak underperformers rather than chasing high-yield or low-valuation names.
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