Shares of business development company Gladstone Investment Corp. (NASDAQ:GAIN) have had a great run since the election of Donald Trump as U.S. president in November. However, I think income investors may want to start thinking about selling the business development company as high yield is overbought, income investors are too euphoric, and Gladstone's Net Asset Value discount has almost completely disappeared.
Gladstone Investment Corp.'s shares have risen ~20 percent since November 8, 2017 when investors started to fundamentally reprice interest rate-sensitive risk assets in light of potentially significant tax cuts and deregulation of a Trump administration. What's more, the Federal Reserve had finally worked up the courage and raised short term interest rates in December, the second time it did so in a decade, fueling interest in high yield income vehicles because higher short term interest rates are poised to benefit business development companies with large floating rate loan portfolios. The expected profit boost in an environment of rising interest rates has therefore been reflected in BDC valuations that, I think, have now increased too much, too quickly. As a result, the formerly very large NAV discounts that we have seen in the BDC sector in 2016 have significantly narrowed, if not fully disappeared.
