Latest news with #FSCreditOpportunities
Yahoo
29-05-2025
- Business
- Yahoo
Why I Just Bought This 10.9%-Yielding Fund and Plan to Buy Even More Shares
FS Credit Opportunities Corp. offers the right kind of yield. This closed-end fund's credit portfolio is attractive, and its investment strategy changes to reflect market dynamics. The fund does have some risks that investors should know about. 10 stocks we like better than FS Credit Opportunities › Some distributions are attractive. And some distributions are downright juicy. I think FS Credit Opportunities Corp.'s (NYSE: FSCO) distributions definitely belong in the latter category. This closed-end fund (CEF) is managed by FS Investments. It focuses on global credit markets, especially senior secured loans and bonds. FS Credit Opportunities Corp.'s distribution yield is a mouthwatering 10.9% right now. Here's why I just bought shares of this ultra-high-yield fund and plan to buy even more. You probably wouldn't believe me if I said the high distribution yield offered by FS Credit Opportunities Corp. wasn't a top reason why I bought the fund. And you'd be justified in such skepticism. The juicy yield certainly ranks as an important factor in why I invested in the closed-end fund. More importantly, though, FS Credit Opportunities Corp. provides the right kind of high yield. What do I mean by that? Other CEFs come with even higher distribution yields, but if you examine their track records closely, you'll find that many of them pay the distributions by selling assets. At least part of the yield you might receive from these funds comes from your initial principal. That's not the case with FS Credit Opportunities Corp., at least not since the current management team took over in 2018. Distributions have been fully funded through net investment income since the FS Global Credit Team assumed management of the fund. The ultra-high yield for this CEF isn't because of a poor performance where a sinking share price drives the yield higher, either. FS Credit Opportunities Corp. has delivered an exceptional return over the last year. Management increased the monthly distribution rate by 7.5% at the beginning of 2025. Since the fund was listed on the New York Stock Exchange in November 2022, its distribution has increased by roughly 52%. I also like the underlying reason why FS Credit Opportunities Corp. can pay such a great distribution: its attractive credit portfolio. The fund has $2.1 billion in assets invested in 77 portfolio companies representing multiple sectors. Around 73% of these companies are privately held, with 93% of them based in the U.S. FS Credit Opportunities focuses primarily on senior secured loans. Roughly 72% of its holdings are first lien senior secured loans, with 3% second lien. Another 9% of the portfolio is in senior secured bonds. I like senior secured debt because it's backed by borrowers' assets. Secured debt is also at the top of the list for repayment. This reduces the fund's risk of default. The fund managers adjust their investment strategy to reflect changing market dynamics. For example, they're prioritizing private investments now because they typically have better asset coverage and are more insulated from volatility than public credit markets. FS Investments stated in its latest quarterly update, "We continue to defensively position the portfolio by adding what we believe are higher-quality investments that have low default risk with solid covenants given the competitive environment across credit markets." That's what I like to hear. The CEF's emphasis on privately held middle-market companies is a good thing. FS Credit Opportunities can often structure investments with these businesses that give it greater protection against risks while still obtaining attractive returns. While I like this closed-end fund, I don't want to give the impression that investing in it doesn't come with risks. One key risk with FS Credit Opportunities is that it uses leverage (borrowing) to boost its performance. Leverage is a double-edged sword that can both help and hurt depending on interest rate swings. The fund's focus on senior secured debt doesn't completely insulate it from the risk of defaults. For example, the value of the assets of borrowers used as collateral could drop. Even though FS Credit Opportunities could gain control of the collateral in a worst-case scenario, the CEF could still lose money on its investments. FS Credit Opportunities has delivered an average annual return based on net asset value (NAV) of 7.75% since Jan. 1, 2018. However, there's no guarantee the fund will be able to deliver positive returns in the future. But I like the overall risk-return profile offered by this CEF. Unless something changes dramatically, I plan to buy more shares in the not-too-distant future. Before you buy stock in FS Credit Opportunities, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and FS Credit Opportunities wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $804,688!* Now, it's worth noting Stock Advisor's total average return is 957% — a market-crushing outperformance compared to 167% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 Keith Speights has positions in FS Credit Opportunities. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Why I Just Bought This 10.9%-Yielding Fund and Plan to Buy Even More Shares was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
08-05-2025
- Business
- Forbes
This 11% Dividend Is Ideal For Retirement Income Investors
Serious senior accountant attentively looking at laptop screen, examines the budget, documents of ... More the company, on the living room, holding laptop on lap, working online, prepares an annual report Vanilla investors fixate on price. We contrarians, focusing on retirement income, know better. It's all about the NAV. Net asset value, baby. Price is what people pay at a given moment. But people panic. Many like to buy high—and sell low! NAV, on the other hand, is what something is worth at that same moment. Price and NAV can become disconnected, especially during emotional market moments. When this happens, it is often a buying opportunity for careful contrarians like us. Let's take a pop quiz. Think about the funds you hold in your portfolio. What was your top performing NAV for the month of April? I'll share mine, with respect to our Contrarian Income Report portfolio. FS Credit Opportunities (FSCO) wins the top award for CIR with an unwavering NAV during April, the most volatile month since March 2020! Dark it was. April 2025 began with a 12% drawdown in the S&P 500. 'America's ticker'—the SPDR S&P 500 ETF Trust (SPY)—took a licking! SPY's NAV fell by an equal amount as its price—nearly 12% in 8 days—because investors dumped shares in the 503 stocks it owns. SPY's NAV is 'marked to market' constantly as its underlying shares trade. This is the drawback of an NAV that is attached to other publicly traded positions. If the contents of the basket plummet in a panic, so does the fund's NAV wrapper: SPY Total Return FSCO does not have this problem because its investments are in the calculated, relatively calm private markets rather than the manic, often-panicking public. The team extends private market loans, where FS can dictate favorable terms that secure its NAV. Think of FSCO as a BDC (business development company) in a CEF wrapper. But it's better than most BDCs. FSCO uses lower leverage and has a lower cost structure than the sector-at-large. Case in point, VanEck BDC Income ETF (BIZD) saw its NAV drop nearly 14% in the first eight days of April! But while SPY and BIZD were in NAV freefalls, FSCO's portfolio held up incredibly well. It didn't budge! FSCO Total Return With such an impressive pedigree, you might guess that FSCO trades at a premium to its NAV because every income investor on the planet would want in. The fund pays an 11% payout in monthly installments, and its NAV never moves. What's not to like? Amazingly, though, FSCO has traded at a discount since we first covered it here at Contrarian Outlook. In fact, when we added it to our Contrarian Income Report portfolio in October, it offered a 10% discount. Which meant this fine fund was a first-class find—available for just 90 cents on the dollar! Why? The fund has been around for 10+ years but only traded publicly as a closed-end fund for the last two. CEF investors loathe newness. We want proof the income will last. So. I called Josh Blum, Head of Investor Relations for FS Global Credit, to discuss. How is this incredible performance even possible during the most volatile month in recent memory? 'The NAV resilience reflects the focus on senior secured and structured credit strategies, which tend to exhibit lower correlation to the broader equity market movements,' Josh explained to me. Portfolio manager Andrew Beckman and his team are skilled at 'layering' credit, or structuring loans with different levels of protection, so that FSCO is positioned to get paid back first even if credit conditions worsen. Josh went on to explain that Beckman also deploys hedges from time to time to smooth out volatility. 'Strong underwriting fundamentals and limited mark-to-market exposure further supported the NAV stability,' Josh continued. His key point here is that FSCO is extending high-quality loans that are not subject to the daily whims of the public markets. These are private credit vehicles held by sophisticated investors who don't care if the S&P 500 is down on a given day—they want their yield! As do we income investors. Since we added FSCO to our Contrarian Income Report portfolio in October, this fund has been a rock with no NAV movement. This has not limited our gains, though! We have enjoyed total returns of 13.1% thanks to monthly dividends and price gains from FSCO's shrinking discount window. These returns annualize to a terrific 23.4%. All looks great in the rearview mirror! But I wanted to know how conditions 'on the ground' are looking to FS Credit today. Josh elaborated: 'We remain cautious credit pickers looking for value-based opportunities. Private credit remains a very large focus, but if public markets become dislocated due to tariff-driven volatility, we will migrate to that opportunity set from time to time.' For us income investors, FSCO is a fantastic opportunity. Brett Owens is Chief Investment Strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: How to Live off Huge Monthly Dividends (up to 8.7%) — Practically Forever. Disclosure: none
