BDC COMMON STOCKS

Full Year 2024

Let’s Take A Minute

The 2024 performance results are in, as the markets petered to a half day close on Tuesday December 31 after roughly 52 and a half weeks.

As the numbers above make clear, all the major indices had a marvelous year both in price and total return terms, even if there is a huge gap between the “blue-chip” Dow Jones and the NASDAQ and S&P 500.

What’s more, this is two years in a row of eye popping returns, especially for the last two indices.

By way of example, the S&P 500’s total return in 2024 is nearly twice its average 10 year return, according to data supplied by S&P Global…

Sourpuss

If you’ll allow us a brief statement of opinion: these are the sorts of returns that tends to create complacency amongst some in the investor community.

We’ve been around long enough to witness “mean reversion” in the markets many times and we doubt the phenomenon has been banished for ever more.

Pat Riley may have trademarked the term “three peat” after winning two NBA series back to back in 1988-1989, but the Lakers did not go on to win again the next year.

Which is all to say that something’s got to give before long, so watch out below and 2025 may not look anything like 2023 and 2024.

Back To The Plot

BDC sector returns – as we discussed in last week-ends article on a preliminary basis – could not compete with NASDAQ and the the S&P 500, but pipped the Dow Jones by some measures.

In price terms, though, the BDC sector had a weak 2024. BDCZ – the exchange traded note which owns most public BDC stocks and which we use as a price guide mostly because its data set goes back a long way – was up 2.2%.

BIZD – the only BDC exchange traded fund and which is relatively heavily traded – was up by an identical percentage.

Our third measuring stick is the S&P BDC Index and that recorded a 4.23% price increase.

Better Yet

However, every knows that you don’t invest in the BDC sector to capture price appreciation but to clip dividend coupons.

According to Yahoo Finance, if you’d held BDCZ all year, the combination of price change and distributions received would have amounted to 12.21%.

For some reason – and this has to do with opaque way these indices are assembled – BIZD’s total return – also according to Yahoo Finance – came to 15.21%.

That’s the difference between beating and not out-performing the Dow Jones.

Best of all is the total return of the S&P BDC Index, which clocked in – as shown below – at 16.61%.

Time To Say Adieu

BTW, next year we’ll be simplifying matters by only relying on BIZD and the S&P BDC Index to quantify return performance.

We wish BDCZ well but the ETN’s thin trading volume is a negative and it’s not a vehicle we would recommend to anyone seeking to invest in the sector.

Pretty Darn Good

If we can set aside the performance of the NASDAQ and S&P 500 for a minute, which are composed of very different securities than the BDC sector, 2024 was a very good year performance-wise.

Let’s focus on the S&P BDC total return number of 16.61%.

That’s better than its 3 year annual average return of 10.46%, the 5 yr return of 11.04% and the 10 year of 9.25%.

Admittedly, though, in 2024 the BDC sector could not match the extraordinary performance achieved in 2023 of 27.8%.

Individual BDC Performance

If you’ve been reading our weekly Market Recap or pored over the price performance of the many public BDCs out there – we track 42 and that number is going up in 2025 – you’ll know that some BDCs have fared very well, some very poorly and the rest just OK in 2024.

In price terms – which is probably not the best way to look at performance – 21 BDCs were in the black YoY, 20 were in the red and 1 (Palmer Square BDC – PSBD – was not around for the whole period).

The picture looks different when calculated on a total return basis.

Given that Seeking Alpha and other sources we tend to rely on for financial data does not offer a total return calculation we undertook our own for every BDC, with the exception of PhenixFin (PFX), in our sister publication BDC Best Ideas.

Here’s a table that summarizes how total return percentages played out in the year just past:

Best Of The Best

Roughly a quarter of the BDC universe achieved excellent returns of over 20%.

Main Street Capital (MAIN) led everyone with a 45.0% return and Gladstone Capital (GLAD) followed at 44.0%.

Both BDCs had an excellent year in terms of fundamentals. MAIN set a new record for its dividend payout and saw its Net Asset Value Per Share (NAVPS) increase by 4.7% besides.

GLAD performed similarly but its NAVPS jumped 10.2% – more than any other BDC.

Further behind at 34.4% was Monroe Capital (MRCC), whose dividend was unchanged for yet another year but whose price shot up after years in the dumps.

MRCC’s NAVPS dropped (2.3%) in 2024 but investors did not seem to care as this 1 year stock price chart demonstrates:

In all 8 BDCs achieved total returns in excess of 25.02% – the S&P 500’s total return.

Down The Table

BDC Best Ideas considers any total return over 12.0% per annum but under 20% to be “superior” considering the sector’s long term numbers.

There were 11 of those in 2024 and another 1 in the 8%-12% range, regarded as “normal” – in line with the infamous “mean”.

Overall, this adds up to 22 BDCs posting OK to excellent returns in 2024.

If Only We Could Stop There

Unfortunately, 19 BDCs did not fare so well.

10 BDCs – when price changes and dividends were all added together – posted returns between 0% and 8% – below average by sector and general market standards.

Even worse, another 9 – despite pumping out a relatively high level of dividends thanks to the highest interest rates in a generation – recorded a loss.

Horizon Technology Finance (HRZN) was the worst performer, off (21.3%) but is followed closely by OFS Capital (OFS) at (19.4%) and TriplePoint Venture Growth (TPVG) at (19.2%).

Not very far off was Prospect Capital (PSEC), whose total return was a negative (16.0%) in a year which saw the BDC maligned in Bloomberg.

Year To Be Reviewed

The mainline financial press has taken to write a good deal about private credit but rarely ventures into any in-depth analysis of the public BDC sector so the critique of PSEC was noteworthy.

Of course, there’s a good deal more going on in our ever expanding corner of the financial market and – arguably – more impactful than what PSEC – always something of an exception to the rule in so many ways – is up to.

However, even the straight-laced publications like Bloomberg, Barron’s, the WSJ, Yahoo Finance and the rest are drawn to stories with blood in the water rather than the more prosaic, slow moving developments that we’ve been covering.

In our next article we’ll dip into our archives to remind you of some of the headline-making stories of 2024 and how they played out.

Year Ahead

After that, we’ll try our hand at determining what might be the most meaningful developments in 2025 , especially those which are likely to be most market moving, both for some individual BDC players and for the sector more generally.

Wrap Up

The data above clearly demonstrates that 2024 proved to be an above year in terms of returns for the BDC sector and about half the individual BDC stocks we track.

Now, though, we have to look forward and what has come before is no guarantee of future performance.

In fact, the superior two year period we’ve just experienced may weigh against future stock price activity.

Moreover, as discussed in our most recent article in BDC Best Ideas – “Into A Glass Darkly: BDC Sector Outlook For 2025” – there can be little doubt that this new year is going to look very different where the economic and interest rate environment is concerned.

The analysts are projecting that almost every BDC will be reporting lower earnings in 2025 than 2024 and will be way below the “peak year” of 2023.

Moreover, as we’ve noted elsewhere, BDC Net Asset Value Per Share (NAVPS) metrics have been worsening in the last two quarters.

These factors will weigh heavily on future BDC dividends.

BDC Best Ideas – which projects out both the NAVPS and annual payouts for every BDC – believes that half the sector will report lower numbers for the former and three-quarters of the latter.

We summed up the conundrum we face this way in BDC Best Ideas:

The $64,000 question is whether BDC prices will hold up in 2025 in the face of the expected downturn in NAVPS, earnings and distributions. Have the markets already priced in the fact that we’re already on the far side of peak earnings or will some investors be shocked – shocked! – as payouts and NAVPS numbers shrink? We don’t know and we may be a quarter or two before the fan is hit and we get to see market reactions. There might be a general sell-off, or investors could – as they’ve done all year – reward the BDCs that have not bent the knee. It’s also possible that potential news about rates staying higher for longer – if associated with a still strong economy – could push BDC prices even higher than they are today … We shall have to wait and see but there’s no doubt that 2025 is going to be a highly stressful year with so many changes on the way after three “fat” years.

BDC Best Ideas – “Into A Glass Darkly: BDC Sector Outlook For 2025” – Decmber 30, 2024