The stock market, specifically the S&P 500, has historically provided around a 10% annualized return, but investors have turned to Business Development Companies (BDCs) and Closed-End Funds (CEFs) for alternative income sources amid recent volatility. BDCs primarily lend to small- and mid-sized U.S. firms and are required to distribute 90% of their income as dividends to avoid corporate taxes. Notably, Blue Owl Capital Corporation (OBDC) currently holds $6 billion in assets with an 11.7% yield but has dropped 9% this year, contrasting with Main Street Capital Corporation (MAIN), yielding 5% and outperforming OBDC and the BDC ETF.
As of 2023, CEFs have averaged an 8% dividend yield, and those tracked by the CEF Insider service have returned over 14% this year, slightly trailing the S&P 500’s 17.5%. A standout, the Adams Diversified Equity Fund (ADX), has achieved a market-beating 23% total return, while CEFs are trading at an average discount of 5.3% to net asset value, potentially indicating future price increases. Recent trends suggest a growing investor interest in CEFs, particularly if stock market volatility persists into 2026.
