Why I’m Allocating 45% of My BDC Capital to Two High-Quality Names

Business development companies (BDCs) remain a go-to option for income-focused investors, but selection matters. I’ve decided to concentrate 45% of my BDC allocation into two names because they offer a compelling mix of yield, credit discipline and management alignment that, together, help balance return and risk.

The first is Ares Capital (ARCC). As one of the largest BDCs, it benefits from scale, consistent deal flow and diversified exposure across industries. ARCC’s portfolio leans toward first-lien and senior-secured loans, which historically reduce downside during stress periods. Management’s operating experience and originations platform help preserve NAV and support steady distributions. For investors seeking a high current yield with a large balance sheet and access to favorable middle-market underwriting, ARCC checks many boxes.

The second is Golub Capital BDC (GBDC). Golub focuses on upper-middle-market lending with strong sponsor relationships and relatively lower historical credit volatility. Its underwriting emphasizes covenant protections and repeat borrowers, producing lower-than-average non-accrual rates versus many peers. GBDC’s floating-rate assets also provide a hedge against rising rates—an important consideration in today’s environment—while its conservative approach to leverage helps protect capital during market dislocations.

Why split the allocation between these two? They are complementary. ARCC delivers scale, liquidity and a broad origination engine that supports distribution sustainability. GBDC contributes tighter credit metrics, sponsor-backed deal flow and a track record of lower realized losses. Combined, the pair offers diversified exposure across loan types, sectors and underwriting philosophies while maintaining a high-yield orientation.

Risk management remains central: BDCs are sensitive to credit cycles, interest-rate swings and portfolio concentration. Position sizing, ongoing monitoring of non-accruals and dividend coverage, and rebalancing after disappointments are essential. I allocate 45% to these two because I view them as durable within a diversified BDC sleeve, not as a blanket endorsement for all BDCs.

Investors should perform their own due diligence and consider their income needs, risk tolerance and time horizon. For income-seeking portfolios that can tolerate credit risk, concentrating in well-established, conservatively managed BDCs can be a pragmatic way to capture yield without accepting unchecked downside.