With the Federal Reserve shifting toward a more hawkish tone, short term bond and cash equivalent funds are suddenly back in focus for investors who care about capital preservation and liquidity. The latest signals, including a possible rate hike and a “higher for longer” outlook in the dot plot, change how cash, money markets, and ultra short bond exposure may fit into a portfolio. This article breaks down what that shift could mean and walks through 3 stocks from the screener that appear more positively exposed to the current rate narrative.

Chicago Atlantic BDC (LIEN)

Overview: Chicago Atlantic BDC is a business development company that provides senior secured loans and equity financing to privately held cannabis and cannabis related businesses, including technology, health and wellness, and hemp or CBD distribution companies across the ecosystem.

Operations: The company generates about US$59.1 million in revenue from financial services as a closed end fund, with all reported revenue coming from the United States.

Market Cap: US$228.0 million

Chicago Atlantic BDC stands out in a higher rate environment because its portfolio is built around senior secured private credit, largely to cannabis borrowers that often have limited access to traditional bank financing. That mix, combined with a reported dividend yield of 13.6%, recent earnings growth and a P/E that sits below some valuation estimates, is attracting attention from income focused investors who care about cash like characteristics but still want equity style exposure. At the same time, the dividend is not fully covered by earnings or free cash flow, funding relies on external sources, and management tenure is relatively short. These factors introduce risks that investors may want to weigh carefully when considering how it might fit alongside more traditional short term bond and cash equivalent holdings.

Chicago Atlantic BDC’s double digit yield and senior secured private loans can look appealing, but the dividend gap and external funding raise questions. Get the full picture in the 3 key rewards and 2 important warning signs (2 are major!)

Great Elm Capital (GECC)

Overview: Great Elm Capital is a business development company that focuses on lending to middle market businesses, primarily through loans and mezzanine financing in sectors such as media, commercial services, healthcare, and telecommunications, while also taking select equity positions.

Operations: Great Elm Capital generates about US$47.0 million in revenue from financial services as a closed end fund.

Market Cap: US$76.8 million

Great Elm Capital sits at the intersection of income focused private credit and short duration, secured lending. This is an area where many investors are looking as the Fed leans more hawkish and markets price in a higher for longer rate path. The company is working to rotate cash and nonyielding equity into first lien senior secured loans and specialty finance assets, while also refinancing higher cost debt and extending its revolving facility, which may support interest margins and earnings quality. At the same time, recent losses, an uncovered dividend with an 18.4% yield, and portfolio hits like the First Brands bankruptcy underline credit and funding risks that investors may want to understand before treating GECC as a bond proxy or cash substitute.

Great Elm Capital’s push toward first lien loans and specialty finance assets is only half the story. The other half sits in the 1 key reward and 1 important warning sign.

Morgan Stanley Direct Lending Fund (MSDL)

Overview: Morgan Stanley Direct Lending Fund is a business development company that primarily provides first lien loans and other higher risk, income producing debt to middle market companies, often backing private equity sponsored acquisitions.

Operations: The fund generates about US$384.9 million in revenue from financial services as a closed end fund.

Market Cap: US$1.3b

Morgan Stanley Direct Lending Fund is drawing interest from investors who want short to medium term credit exposure that can benefit if the Fed keeps rates higher for longer, while still focusing on first lien, collateral backed loans. The stock trades below some fair value estimates at the same time as analysts expect solid earnings growth and see potential support from a larger directly originated loan pipeline and a growing joint venture. On the other hand, an uncovered dividend near 12%, recent losses tied to one off items, and a funding model that relies entirely on external borrowing mean income and balance sheet risk is very real. That mix of yield, valuation appeal, and credit risk is where the real story starts for MSDL.

Morgan Stanley Direct Lending Fund’s combination of first lien loans, uncovered 12% dividend and external borrowing means there is a lot going on beneath the surface. Get the story behind that yield in the 2 key rewards and 4 important warning signs (1 is major!)

The three stocks covered here are only a taste of what is available. The full screener surfaces 17 more companies in the Short-Term Bond and Cash Equivalent Funds screener that share equally compelling short term bond and cash equivalent stories. Use Simply Wall St to identify and analyze the specific catalysts, interest rate exposure, and income profiles that matter most so you can focus on the highest conviction ideas for your portfolio.

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If Morgan Stanley Direct Lending Fund or any of these companies sound like a great opportunity, register for FREE with Simply Wall St and add your companies to a Watchlist to monitor the share price against the fair value the ideal entry point. Once you've made your move, manage your holdings with our Portfolio Command Center that filters out the noise to deliver only the most critical, actionable updates. Throughout your journey, our Community allows you to filter the best ideas from thousands of investor perspectives. By uncovering hidden catalysts and risks early, you'll accelerate your decision-making and stay one step ahead of the market.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.