Francis Sabourin believes that the market for public BDCs is worth considering as NAVs continue to fall
Each month at WP, we offer a slate of articles and content pieces that go deep on a particular topic. This month, we're focusing on fixed income.
Business development companies (BDCs) have not had an easy few years. These entities, which loan to small and medium-sized private companies, have seen their NAVs fall significantly. Publicly traded BDCs, as measured by the S&P BDC index, have dropped over 25 per cent in the past 12 months and 14 per cent in 2026 so far. Loans to software companies put BDCs squarely in the crosshairs of the AI narrative and the purported death of the software as a service (SaaS) business model. A few prominent defaults helped exacerbate the downturn. Amid all the bad news and poor performance, though, Francis Sabourin is noticing opportunity.
Francis Sabourin is Senior Investment Advisor and Senior portfolio manager at Francis Sabourin Wealth Management of Richardson Wealth. He has been watching the space closely since the start of the year. His interest is driven by two key factors: yields in excess of 12 per cent from BDC exposures as well as a significant price and liquidity advantage for publicly listed BDCs relative to their private alternatives. While the space is still struggling from a NAV perspective, Sabourin believes there is enough changing in the macro landscape to justify an exploratory allocation.
“Some of the negative headlines about defaults have dissipated, and we’ve seen new origination spreads move higher along with the base rate as markets start to expect interest rate hikes in the United States,” Sabourin says. “So now we see some positive trends, but nonetheless the public BDCs are feeling the heat from private BDCs. The negative sentiment is still there but it creates interesting opportunities. It might be a good time to start to accumulate for those looking for income who don’t care about volatility.”
The public advantage in BDCs
Sabourin has long maintained that publicly listed BDCs offer a few advantages relative to their private equivalents. While private BDCs managed by companies like Blue Owl and Oaktree have been the subject of significant negative headlines, public BDCs have borne the headline risk without actually carrying as many under-performing loans. As it stands, they offer attractive yields at a NAV discount relative to private BDCs, with far more significant liquidity.
Sabourin caveats his interest in public BDCs with the expectation that volatility will remain elevated and NAV may continue to fall. However, he sees some eventual opportunity for capital appreciation as the loans and sector exposures that currently weigh on BDCs get worked through or their issues get resolved. In the meantime, he sees the coupon income from these products as attractive enough to warrant some investment despite the risks priced into their NAV.
“I see BDCs as high yield returns but with an investment grade rating,” Sabourin says, when asked how to view BDC return expectations. “They’re not junk… it looks like junk at 12 per cent, but it’s not junk for sure. These are loans that generate income and they’re secured by assets, but maybe sometimes the asset might be lower than expected.”
Who BDCs could be for and how to access them
Sabourin argues that most investors want additional income in their portfolios, and that suitability for a BDC exposure may be better assessed on a client’s capacity to tolerate volatility. He argues that any exposure should be limited in nature and based on client education. For those clients who want the income and can tolerate the volatility, Sabourin nothes the entire publicly listed BDC market is on US exchanges, however one Canadian-listed ETF, the Accelerate Diversified Credit Income ETF (INCM.TO) offers exposure to US-listed BDCs in Canadian dollars and can help with the management of cross-border tax issues. Given the high interest income on these assets, Sabourin says they are likely most advantageous if held in a TFSA.
Sabourin also believes that the current moment may see more of a turnaround in NAV as we begin to get quarterly reports in June. While certain software names are still being beat up on the market, others may buck the trend of AI displacement. In either case, their capacity to repay loans may not be completely broken, which could see a reversal of the narratives hurting BDCs.
For advisors who want to make a recommendation, Sabourin says that the client conversation may not be an easy one. It’s a subject that ought to test an advisor’s ability to see opportunities in complex asset classes and communicate those opportunities to clients. For Sabourin, that’s exactly the kind of challenge he relishes.
“It’s easy to convince someone to buy something that is up 10 per cent, but when it’s down 10 or 20 per cent, the question becomes ‘why is this a good time,’” Sabourin says. “It’s a test of your professionalism and your experience as a portfolio manager or advisor to make sure that clients understand the concepts and outline why they’re part of the asset mix.”
