The NAVigator

With the market kicking business-development companies in the teeth, John Cole Scott , President of CEF Advisors, digs into his firm's data looking at "artificial-intelligence risk scoring" to find BDCs that have been hurt by headlines without holding tainted portfolios. BDCs relied heavily on software companies, due to the tech sector's blend of strong fundamentals, innovation and ability to resist economic fluctuations, but have suffered as investors fear for the future of software in the face of challenges from artificial-intelligence companies. Scott, who also serves as chairman of the Active Investment Company Alliance, went looking for BDC's with "low AI risk, clean credit and sensible leverage and costs," and came away from the analysis convinced that investors should lean into the troubles. Specifically, he mentions funds from Nuveen and Kayne Anderson as worth watching now.

Matt Weyandt, a client Portfolio Manager on the listed real assets team at Nuveen, discusses how buying "location-specific hard assets" in essential industries that deliver to a "Halo theme" — heavy asset, low obsolescence — creates a buffer against a market that is being driven by headlines and geopolitical risks. Weyandt says that real estate, infrastructure, utilities, midstream energy companies, communications and commodities are not immune to the headlines, but they are built to deliver regardless of market conditions, and he discusses Nuveen's wide range of options for accessing those assets through closed-end funds.

Kim Flynn, president at XA Investments, a firm that specializes in alternative investments, says recent private-credit bad news events have widened discounts and raised concerns over business-development companies and interval funds, but have likely created a buy-the-dip moment in the industry. She discusses how fund sponsors and advisers must do a better job educating investors on how these products get through worrisome times, but says she does not think the headlines or their attendant challenges on direct lenders will discourage yield-hungry private-credit investors in the long run.

John Cole Scott, President of CEF Advisors, says that closed-end funds are being buffeted in two directions due to current headlines, with war in Iran impacting net asset values and anchored interest rates impacting levered closed-end funds and discounts shifting to reflect both situations. Scott, who also serves as the Chairman of the Active Investment Company Alliance, says sectors that have benefitted from the chaos have been MPL and energy funds, while business-development companies and CLO equity funds have suffered. Scott also put his firm's "Trifecta analysis" to work, with four funds to consider now: ticker symbols AFB, ARDC, CSQ and MEGI.

Robert Gilhooly, Senior Emerging Markets Economist at Aberdeen Investments, says that the continuing war in Iran has put pressure on oil prices, but he expects them to stabilize short-term while the market determines what happens next. If the outlook becomes one where the Straits of Hormuz are closed off to shipments for a longer stretch of time, he says "If things get really bad, you could be talking $175 for a barrel of oil." Gilhooly discusses the investment adage that the first shots of war signal a time to buy, and says that investors likely will see solid opportunities, but that they might want to wait a little longer for more clarity if they didn't jump in with the very first shots. He also discusses how tensions should be good for income-producing investments like closed-end funds.

Ryan MacDonald, Portfolio Manager for the Bluerock Private Real Estate Fund, says that in a world teeming with market worries and broad geopolitical concerns, private real estate is "uniquely boring, in a good way." He says the market has taken its pain over the last three years through interest rate changes and the market cycle, but now values have receded creating a solid entry point. MacDonald, who also serves as chief investment officer at Bluerock, says that "Entry point is the single biggest driver of future value for private real estate returns," and he notes that on an inflation-adjusted basis, the market is now approaching valuation levels "not seen since the depths of the 2008 financial crisis."

The stock market has been beating up business-development companies, with the sell-off largely being blamed on the artificial intelligence boom and the high number of loans that BDCs make to software firms. Behind the theory that software companies will struggle to pay debts as artificial intelligence renders their products less useful and attractive, there are real loans, and John Cole Scott, President of CEF Advisors, digs into the math that is impacting the lenders and BDCs in general. Scott, who also serves as Chairman of the Active Investment Company Alliance, discusses two BDCs and shows how the headlines could be creating values that make the industry more attractive, not less, for investors who understand and measure the risk.

Robinhood Markets is launching its first closed-end fund, Robinhood Ventures Fund I, with the first IPO the closed-end fund space has seen in about four years and John Cole Scott, President of CEF Advisors, sizes up the prospects for the new issue, which intends to be a concentrated portfolio of private companies. Scott, the chairman of the Active Investment Company Alliance, discusses the role private equities can play in a portfolio, as well as the challenges investors face in sizing up a fund with a net asset value entirely based on the purported market value of shares that don't trade in public markets.

Chris Oberbeck, chairman and chief executive officer at Saratoga Investment Corp., says that increases in default rates are more of a return to normal than a sign of trouble for business-development companies or the economy. While stories like the First Brands bankruptcy and fraud case have market watchers looking for more trouble, the rest of the headlines in the industry are much more routine, which leads Oberbeck to think that recent activity is more a hangover coming from a time of particularly low defaults, rather than a sign of the start of a bad business cycle.

Kyle Brown, Chief Executive Officer at Trinity Capital, gives his outlook for the private credit and lending space, and notes that there could be some challenges for business development companies and private lenders late in the current economic cycle because returns from private credit generally have been declining. That has meant single-digit leveraged returns, Brown says, so "Investors are not happy." That, in turn, has led to redemptions in private funds and falling stock prices. Still, Brown says, that has created some opportunities for lenders and investors who keep digging to find gems; he sees the technology sector and continued capital expenditure spending as being particularly robust in the year ahead.

Nick Robinson, Deputy Head of Global Emerging Market Equities at Aberdeen Investments, says that the artificial intelligence wave that has pushed domestic stock markets to record highs is readily apparent around the world — including in countries that are not necessarily synonymous with technology — and that the capital expenditure wave should continue to power foreign markets if companies can monetize the potential gains created by AI. He also discusses how markets are weathering geopolitical events and why he thinks they will continue to push higher despite nervous headlines.

John Cole Scott, President of CEF Advisors, reviews the key takeaways from his firm's fourth-quarter review of action in the closed-end fund industry, focusing on fund consolidation trends that have occurred in the middle of booming asset growth for the industry, as well as discount levels and whether narrowing discounts set up 2026 for more muted results. Scott, the chairman of the Active Investment Company Alliance, also noted that a number of closed-end fund categories are off to a fast start to the new year, and while areas like international equities and convertible bonds are continuing strong performance from 2025, other areas like managed limited partnership funds and large-cap business-development companies have jumped ahead after struggling in 2025.

Stephen Davis, closed-end fund product specialist at Nuveen, says that while 2025 was a strong year for closed-end fund performance, price returns exceeded net asset value (NAV) gains, reflecting a narrowing of discounts, continuing a trend from 2024. Those narrower discounts will make it harder for that broad trend to continue in 2026, but he noted that municipal bonds and senior loans are two areas that should provide promising opportunities. Davis noted that 2025 saw significant merger and rights offering activity, a trend he expects to continue in the new year.

Kimberly Flynn, President at XA Investments, discussed the just-launched XAI Interval Fund Credit Index, which tracks the performance of non-listed closed-end interval funds and tender offer funds in the alternative-credit space, and how having the benchmark should help investors as they look at adding private credit and other alternatives to their portfolios. Flynn says the new index — which is not currently investable, so it is not the basis for a fund — is a sister to a broad interval fund index the firm introduced last year, both reflecting the growth in interval funds and in advisers' interest in adding them to consumer portfolios.

John Cole Scott, President of CEF Advisors, reviews the forecasts he made a year ago for 2025, grading his wins and losses on everything from inflation levels and Treasury yields to discount levels and the outcome in various sectors of the closed-end fund industry. Scott, the chairman of the Active Investment Company Alliance, also reviews the five funds he identified as buys for 2025 and how they turned out.

John Cole Scott, President of CEF Advisors, climbs his mountain of data to get a great view on the year ahead, and he's forecasting no recession, lower inflation and modest GDP growth for 2026, with less volatility coming from the rate picture but more market tension due to the global macro picture. Scott, who also serves as chairman of the Active Investment Company Alliance, also discusses what he sees happening in the closed-end fund industry, from the growth he expects to see in assets to the activism picture, down to what he foresees in leverage, return of capital and more. Plus, he's got five funds he's expecting big things from in the new year.