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BDC Common Stock Market Recap: Week Ended June 8, 2018

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BDC COMMON STOCKS

Here We Go Again

The Energizer Bunny that is this BDC Sector rally kept on moving up for yet another week.

What’s more, the pace of the rally accelerated over the last 5 business days.

The UBS Exchange Traded Note with the ticker BDCS – which we use as one of our guides – increased to $20.51, from $20.33 and $20.24 a fortnight ago.

As the chart below shows, BDCS has been on an unwavering upward track since May 2, 2018: up 4.8%.

Looking Elsewhere

If we look at the Wells Fargo BDC Index, which provides a Total Return calculation, we see that the BDC Sector is up 3.37% in the last month, and 7.15% in the last 3 months.

On a YTD basis – says Wells Fargo – the 43 BDCs in their index are up 3.44%.

To Each Their Own

For our part, we also like to look at how many BDCs were up in price over a 1 week and 4 week period.

This week, we counted 13 down in price and 33 up or unchanged.

Over the last 4 weeks just 11 are down and 35 are up in price or unchanged.

Biggies

This week there were some major movers at both ends of the spectrum.

On the downside, the micro-sized OHA investment (OHAI) dropped by (9.4%) on the week, and is now down (6.5%) over a 4 week period.

This has been a thinly traded stock (average daily volume 32,476) best suited to speculators for some time and does not reflect overall market conditions.

Medley Capital (MCC) continued its long noted descent, hitting new lows on the way, and off (4.2%).

Headed Up

However – and more instructive – there were 6 BDCs that increased 3.0% or more in price on the week.

Top of the pile was Capital Southwest (CSWC), which announced both good results and a vastly increased distribution schedule.

The BDC Reporter – with its Dividend Outlook hat on – wrote about CSWC on June 5, 2018 before we reviewed the 10K.

We had another bite at the apple on June 8, 2018 after digging into the 10-K and hearing off the new Supplementary Dividend.

(Since then, we’ve received additional clarification from CSWC itself, so we’ll be updating that last article next week).

Anyway, CSWC was up 10.9% this week.

Following in CSWC’s footsteps – but without any clear cut catalyst – was OFS Capital (OFS): up 6.7%.

Also up more than our target percentage were WHF (4.8%), TCRD (4.0%), BKCC (4.0%) and PFLT (3.3%).

Another Favorite Indicator

We also noted that a number of BDCs hit new 52 Week Highs during this week.

Of course that included CSWC, but also Gladstone Investment (GAIN), Saratoga Investment (SAR) and Ares Capital (ARCC).

This kept us busy all week updating our database.

Telling

Speaking of our own data collection, we noted by week’s end that only 2 BDCs were trading within 5% of their 52 Week Lows.

One was – unsurprisingly – MCC, and the other – surprisingly – was Solar Senior Capital (SUNS).

Another 9 BDCs are still trading between 5%-10% off the 52 Week Low, which is not nothing.

However, 7 BDCs are trading within 5% of their 52 Week Highs and 13 within 5%-10%.

Those are numbers we’ve not seen in many, many months, and are harbingers of greater investor enthusiasm.

Segue

Speaking of enthusiasm, we also count 41 BDCs trading above their 50 Day Moving Average, a reliable sign that investors are in an optimistic standpoint.

The fact that the number of BDCs in the green drops to 20 when talking about who’s over their 200 Day Moving Average underscores that any market enthusiasm is relatively recent.

Looking Forward

What the next few weeks will hold is – as always – hard to say.

However – judging by the several BDC rallies we’ve experienced before – there is still room to run.

We’ve not yet seen the phenomenon of most of the most popular names levitating up to new highs, with the exception of ARCC and GAIN.

TPG Specialty (TSLX) still trades (14%) off its 52 Week High. Golub Capital (GBDC) is off (8%). TCP Capital (TCPC) is off (13%).

Everyone’s favorite BDC Main Street (MAIN)  – judging by the mash notes on Seeking Alpha – remains 7% away from the 52 Week High.

Long Way To Go

BDCS itself would have to increase another 16% to match the highest point reached back at the apex of the last market rally.

To illustrate we offer up a chart showing where BDCS has gone between March 2017 and today.

This shows that the BDC Sector has recovered 28% of the Highest To Lowest price, and has plenty of room to go to return to its prior peak.

Nothing Is Certain

Of course, nothing is written that what goes down must go back to where it was before.

We are just framing the possible bands in which the BDC Sector tends to play.

Known Unknowns

With the impact of the Small Business Credit Availability Act playing out in slow motion – with most BDCs not even able to apply the new rules till April 2019 – this could take a long time to play out.

To restate the much stated, investors abhor uncertainty, and there is a lot which is unknowable that will happen between now and the spring of 2019.

The market may close its eyes and push the Buy button anyway or fret about higher credit losses, ever more debt and spread compression and reach for the Sell button.

Jinxing Ourselves By Saying This

For our own part – as reflected in our continued holding of BDCS and a fully invested BDC common stock position – we’re guardedly optimistic.

A Reminder

After all, BDC rallies do not come along every day.

We’ve recently experienced 11 months (March 2017-February 2018) of a declining BDC market – which the BDC Reporter wrote about every week along the way.

Nor have we forgotten the July 2014 to February 2016 meltdown, where BDCS dropped nearly 40% (!).

That was a nearly 20 month period of disappointment after disappointment as every mini rally was followed by a bigger drop.

Miss this next rally – if that’s what we’re in – and like the late night bus – you might be waiting a long time for the next one.

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