We are pleased to provide you the July 2026 Portfolio Update for the Muzinich BDC Income Fund – Active ETF (BDCI or the Fund).
Fund Performance1
Portfolio Commentary
The Fund delivered an income return of 0.88% during the month, compared with the targeted RBA Cash Rate + 3% p.a. return of 0.61%. The Fund declared a monthly distribution of $0.17 per unit, announced on 29 July 2026.
U.S. large cap stocks (S&P 500 Index) were mostly flat in July, with a rotation away from high-performing Technology sector stocks. Despite a strong corporate earnings season, investors were looking for evidence of a return on continued increase in Artificial Intelligence (AI) related infrastructure buildout and capital expenditure (CapEx) spending. The Federal Reserve kept the interest rate unchanged at 3.5-3.75%, while maintaining a hawkish tone on rates policy. Markets continued to adjust the future interest rate expectations higher, as strong economic data and higher energy costs put upward pressure on inflation. U.S. Q2’26 GDP growth was at 1.5% at an annualised rate, according to the advance estimate, showing resilience amid shifts in the macroeconomic landscape.
The S&P BDC Index declined -2.74% in AUD, as valuation dispersion continued to widen on fundamental credit performance of BDCs. Muzinich & Co. (Muzinich) continued to see non-traded BDC redemptions remained in media spotlight, as large private credit platforms filed for second quarter redemption requests. This continued to create an overhang on investor sentiment towards public BDCs, even though public BDCs are not subject to redemptions. Liquidity remained healthy across public BDCs. There was no notable forced selling to date from non-traded BDCs, per Goldman Sachs research as of 3 August 2026.
The Fund delivered a price return of -2.72% during the period, outperforming the S&P BDC Index (the Benchmark). The Fund’s outperformance in July was mainly driven by an underweight position in Blue Owl Technology Finance (OTF), no exposure to Neostellar Capital Corp (NSLR) and an overweight position in Ares Capital Corporation (ARCC). ARCC reported earnings broadly in line with expectations, with the non-accrual rate remaining low at 2.4% and unchanged quarter-over-quarter. The dividend was also maintained as management viewed the earnings generation as adequate. Even though the deal environment remained subdued, ARCC made $2.6 billion in new commitments this quarter.
While macro uncertainties remained high with geopolitical shocks, midterm election and flaring inflation, the U.S. economy continued to build momentum, driven by CapEx spending in AI, strong corporate balance sheets and healthy consumer spending. Muzinich thinks the current “hold” on interest rates is positive for sustaining BDC net interest income and dividends, as BDCs navigate through the refinancing activity in the software sector in the next six to 12 months.
Muzinich sees reaccelerating revenue growth in U.S. middle-market companies and earnings shifting from slight declines to growth this quarter, with the Golub Altman Middle Market Index showing 3.1% revenue growth and 3.7% earnings growth in Q2’26. More broadly, these results are consistent with an economy that continues to demonstrate resilience.
While private credit defaults are expected to rise modestly over the remainder of 2026, high-quality BDCs have the capital capacity to deal with incremental credit issues, and the deal environment is gradually improving to be more lender friendly. BDC management reported 25-50bps of credit spread widening and tighter documentation on new investments versus last year.
With the S&P BDC Index trading at 0.81x Price/Book and a 12.3% dividend yield, we see the risk/reward attractive. In Muzinich’s view, the 2025 rate cuts were fully reflected in BDC earnings and dividend levels through Q1’26. Credit and dividend stabilisation could be potential catalysts for valuation recovery.
Notes: 1. The Fund inception date is 25 March 2026. Fund performance is in AUD and calculated based on net asset value per unit, which is after management fees and expenses and assumes that all distributions are not reinvested in the Fund. Periods greater than 1 year are annualised. 2. Income Return is calculated based on distributions going ex during the period relative to the opening NAV. Price Return represents the change in NAV excluding distributions. Total Return is the sum of Income Return and Price Return and does not assume reinvestment unless otherwise stated. 3. RBA Interbank Overnight Cash Rate Index + 3% p.a. accrued daily. 4. Benchmark for the Fund is S&P BDC Index USD Price Return (unhedged).
DISCLAIMER: AGP Investment Management Limited (AGP IM) (ABN 26 123 611 978, AFSL 312247) is a wholly owned subsidiary of Associate Global Partners Limited (AGP) (ABN 56 080 277 998), a financial institution listed on the ASX (APL). AGP IM is the Responsible Entity of Muzinich BDC Income Fund – Active ETF (ARSN 691 941 401) (the Fund).
This material has been prepared for general information only and does not constitute investment advice or a recommendation. Neither AGP IM, AGP, their related bodies corporate, entities, directors or officers guarantees the performance of, or the timing or amount of repayment of capital or income invested in the Fund or that the Fund will achieve its investment objectives. Past performance is not indicative of future performance.
Any references to ‘We’, ‘Our’, ‘Us’, or the ‘Team’ used in the context of the portfolio commentary, is in reference to Muzinich, as investment manager for the Fund.
Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided that the positions will remain within the portfolio of the Fund. Any securities identified and described are for illustrative purposes only and do not represent all of the securities purchased, sold or recommended for client accounts.
The reader should not assume that an investment in the securities identified was or will be profitable. Investors should seek professional investment, financial or other advice to assist the investor determine the individual tolerance to risk and needs to attain a particular return on investment. In no way should the investor rely on information contained in this material. Investors should read the Fund’s Product Disclosure Statement and Target Market Determination in full before making a decision to invest in the Fund. These documents are available at www.associateglobal.com.
