We are pleased to provide you the August 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 0.85% during the month, outperforming the targeted RBA Cash Rate + 3% p.a. return of 0.60%. The Fund declared a monthly distribution of $0.17 per unit, announced on 27 August 2026.
U.S. large-cap stocks (S&P 500 Index) rose 2.72% in August. The market’s confidence improved on strong Q2’26 corporate earnings, as earnings growth continued to surprise investors to the upside. Energy and Technology-related sectors reported the strongest earnings per share (EPS) growth figures, but there were also signs of earnings broadening. Notably, technology stock momentum resumed after July’s sharp sell-off. Semiconductor stocks bounced back, but it was in fact the Software sector that had stronger gains as solid fundamentals in the latest earnings season offset concerns over the threat from artificial intelligence (AI). The U.S. economic backdrop remained strong, with Purchasing Managers’ Index (PMI) data, a monthly economic report that measures the financial health and activity level of business sectors like manufacturing and services, reaching a 52-week high. The U.S. fiscal deficit came into the spotlight as inflation fears and heavy debt supply pushed the 30-year Treasury yield above 5.3% in August, reaching levels not seen since 2007. On August 19, Treasury Secretary Scott Bessent announced plans to double long-end debt buybacks (from $2 billion to at least $4 billion per operation) starting September 9 to calm the bond market.
The S&P BDC Index rose substantially by 9.30% in USD, mainly driven by better-than-expected Q2’26 Business Development Companies (BDC) earnings, expectations of higher interest rates, as well as reignited hope for improving private credit deal activities in H2’26. BDCs generally reported stable net asset values and non-accruals. The stabilisation of private credit loan portfolio valuation and no widespread software-related defaults were the main catalysts for improved investor sentiment and the rally in BDC stock prices this month. BDC dividends were mostly maintained and some of the BDCs issued special dividends this quarter. However, non-traded BDC flows remained muted, similar to the previous month.
The Fund’s total return of 4.72% for the month was strong, although its overweight position in Bain Capital Specialty Finance (BCSF) and underweight positions in Blue Owl Technology Finance (OTF) and FS KKR Capital Corp (FSK) detracted from returns relative to the S&P BDC Index. BCSF reported mixed Q2’26 earnings with net interest income exceeding estimates, but non-accruals ticked up from 0.6% to 2.2% sequentially. OTF reported better-than-expected earnings, with a stable net asset value and a below industry average non-accrual rate. Investors were attracted to its cheap valuation and started to take interest as AI disruption related software credit fears were abating in August. Muzinich remains cautiously positioned in software credits and underweight in OTF. The manager also plans to reduce operating leverage of the BDC to reduce overall risk. The Fund is overweight in this position, which detracted from performance.
The U.S. economy remained strong despite the mixed macro-economic backdrop, as demonstrated in Q2’26 corporate earnings growth. While the U.S. economy remains robust in general, there is increasing uncertainty in US monetary and fiscal policies, driven by higher-than-expected inflation, a growing U.S. government deficit, as well as policy risk from the U.S. Treasury trying to manage long-term treasury yields. Muzinich thinks interest rates will likely remain higher for longer, which is beneficial to BDC earnings provided (as Muzinich expects) they do not trigger widespread credit defaults to middle market borrowers.
As BDC earnings are showing stabilisation, Muzinich is seeing some value buyers coming into the market, attracted by the lowest valuation or highest dividend yielding BDCs. While Muzinich thinks the market is undervalued compared with its fundamentals, Muzinich continues to be cautious and maintains an overweight position in high-quality BDCs. However, it has deployed some cash into lower-valued BDCs in August for relative value. Muzinich thinks the long-term returns will rely on BDC credit performance, which will diverge as we move through this credit cycle.
With the S&P BDC Index trading at 0.90x price to book ratio (P/B) and 11.4% dividend yield as of 31 August 2026, Muzinich sees the risk/reward as attractive to the upside.
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.
