FSCO Plunges 8.72% on Three-Day Slide Amid Rising Short Interest and Macro Worries

FS Credit Opportunities Corp. (FSCO) fell 0.31% on Tuesday, marking its third consecutive day of declines, with the stock dropping 8.72% over the past three sessions. The share price hit an intraday low of $0.0645, its lowest level since April 2025, amid growing investor caution.

Recent institutional activity has highlighted diverging views on FSCO’s strategy. While firms like Geneos Wealth Management and Grimes & Company Inc. added to their holdings in Q4 2024, others, including Wagner Wealth Management and Merit Financial Group, reduced stakes, signaling unease over macroeconomic uncertainties. Short interest in the stock surged 44.4% in October 2025, reflecting heightened bearish sentiment as analysts raised concerns about credit risks in the business development company (BDC) sector and potential yield cuts amid rising interest rates.

Despite maintaining a high annualized yield of 11.19% through its recent dividend announcements, FSCO faces scrutiny over valuation pressures. A Seeking Alpha downgrade in late October warned of “big downside risk” due to macroeconomic headwinds and narrowing discounts to net asset value (NAV). The fund’s 33.1% year-to-date NAV growth, while strong, has not fully alleviated worries about overvaluation as the discount to NAV approaches zero, limiting further upside potential.

Strategic moves, including a $150 million capital raise in January 2025, underscore FSCO’s efforts to bolster its balance sheet. However, the fund’s heavy exposure to private credit and floating-rate assets—designed to insulate it from rate volatility—has not shielded it from broader market jitters. Analysts note that while FSCO’s focus on senior secured loans positions it to outperform in a high-rate environment, credit stress in its portfolio remains a critical risk factor.

Market dynamics suggest a tug-of-war between income-seeking investors drawn to FSCO’s yield and those wary of macroeconomic risks. The recent decline underscores the fragility of investor confidence in the BDC sector, where liquidity constraints and interest rate sensitivity continue to weigh on valuations. FSCO’s ability to navigate these challenges will likely determine its near-term trajectory in a market increasingly focused on downside protection.