BDC Market Recap: Week Ended June 16, 2017Premium Free
LAST MINUTE BURST
Week 23 ended – using BDCS as our guide- slightly up at $22.55. Last week the BDCS price was $22.47.
However, all that increase and more came from a boost in the last hour or two of trading. At 12:25pm Friday BDCS was at $12.35.
Put in any perspective, the BDC Sector is flat. As this chart shows, we have been – as we reported last week – flat as a pancake since May 10.
That’s 5 weeks now. The summer doldrums before the summer even gets going.
The metrics suggest a definite slowdown. Only 7 BDCs are trading above their 50 Day Moving Average versus 14 last week and 12 the week before.
That’s out of 46 BDCs we track. We’ve just added the new Carlyle Group BDC with the ticker CGBD, which we highlighted Friday.
(By the way, we’ve reviewed the Prospectus and will have a few choice comments shortly about the latest public BDC).
Just 18 stocks , versus 20 last week, are above the easier-to-beat 200 Day Moving Average.
However, like last week, 24 BDCs are trading within 10% of their 52 Week High. Led by CGBD !
GOOD TO BE GLAD
Gladstone Capital (GLAD) was up 1.4% and is only (1.8%) off its 52 Week High.
Quite a turnaround for a BDC that was priced at $4.19 a year and a half ago and a stark reminder how fortunes can change even as NAV and distributions have barely moved.
NOT SO HAPPY
When we look at the BDCs within 10% of their 52 Week Lows we find 9 names. After eliminating CGBD, which is on both lists, that leaves the same number as last week.
The two Fifth Street BDCs (FSC and FSFR) are the worst performers as investors abandon the stocks while waiting to hear from their Investment Advisor as to what will happen next.
OHA Investment (OHAI) continues to reach new lows, also waiting for news, but did announce a 2 cent distribution as poor consolation for shareholders.
To get an idea how BDC investing can punish the unwary investor: an OHAI buyer at the 52 Week High would be down (63%) as of Friday, if hanging stubbornly on.
A KCAP Financial (KCAP) former optimist would be down (29%).
Even amongst the worst performing BDCs – and both these funds and most of the others in the vicinity have been under-performing for well over a year- there are a lot of speculative buyers.
This will boost up prices for a while, but the migraine on the way down is fierce.
MIDDLE OF THE PACK
To illustrate how fickle BDC markets can be, we looked at 6 of the Steady Eddy BDCs that have posted as-expected earnings and unchanged distributions, but which are already more than 10% off the 52 Week High.
Their price ranges varied over the last 12 months from about 20% to 40%, from high to low. The median was just shy of 30%.
Mr Market, notwithstanding the overall quiet conditions, continues to buffet around individual names in a constant bout of re-assessment and re-pricing.
This will all seem like a light breeze on a summer’s day in the next sustained downward shift in sentiment and price ranges will widen even further.
The funny thing is most investors say that they’re invested in BDCs for the steady income but the reality is that there is much front running and hard core trading going on.
The good news is that BDC oriented investors can make (or lose) money both ways…
The slow moving malaise affecting BDC common stocks has reached BDC Baby Bonds, notwithstanding several new issues in recent weeks.
Just 11 (versus 15 last week) of the 33 issues we follow are priced above their 50 Day Moving Average.
19 are above the 200 Day Average, versus 22 in last week and the week before.
The median price was $25.53, down from $25.68. That’s a (0.6%) slip, which is material in BDC Note terms.
COMPARE AND CONTRAST
We looked to Closed-End Fund Advisors publicly available Baby Bond Index for confirmation or otherwise.
They have 32 securities, too, in their index and charts and graphs.
Anyway, the Baby Bond Index there was also down, but just (0.07%) on the week, and still up 0.69% on a 1 month basis.
Hardly enough reason to panic.
We also know that a number of Baby Bonds have reached their quarterly ex-dividend date and tend to trade down, which pushes prices down marginally.
As has been the case in prior weeks, there are 4 Baby Bonds trading above $26.0 and only 1 below par and that Medallion Financial’s (MFINL) Baby Bond.
SHORT TERM OUTLOOK
With so many Baby Bonds having passed their non-redemption period, we expect existing holders to take money off the table by selling in advance of potential redemption news.
Or, at least be wary of bidding up Baby Bonds too much above par.
That will keep a lid on many Baby Bond prices regardless of overall market conditions and is more of a technical factor.
We leave you with a screen shot from Closed-End Fund Advisors chart of 2017’s price performance for BDC Baby Bonds.
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