BDCs have now fallen an average of 9% since S&P announced on February 24, 2014, that it would remove BDCs from its indices and was followed by Russell on March 3, 2014. I will use this article as a starting point to put a bit more color on pricing and timing expectations as well as support levels for each BDC as we get closer to the Russell reconstitution. Some of the things I will be looking for is buying momentum along with my long term recommendations and price targets but also trying to keep in mind the short and long term exposures that each BDC has to the Russell indices and other institutional investors. This will be an ongoing series and will follow the volatility related bumps and dips through the end of June. Keep in mind that earnings season is here so over the next few weeks much of the pricing depends on results and I will try to cover my expectations in articles similar to "Profit Rankings For BDCs: April 2014". I would suggest that investors keep plenty of dry powder and not expect to buy at the bottom of this cycle.
Previous Russell related articles:
- Part 1: Direct Russell Exposure
- Part 2: General Institutional Exposure
- Part 3: BDC Fees
- Part 4: Short and Long Term Exposure
The following table shows my long-term recommendations and suggested portfolios along with recent price points to indicate which companies are closing in on three month or one year lows. I have also included whether or not I believe each BDC is getting close to a support level or "floor". Obviously these floors will continue to change and be tested through the end of June but for the BDCs that I believe currently have no support level, investors may want to take a "wait and see" approach before starting a position. These would include Ares Capital (NASDAQ:ARCC), PennantPark Investment (NASDAQ:PNNT) and Apollo Investment (NASDAQ:AINV) that are all components in some of my suggested portfolios. BlackRock Kelso Capital (NASDAQ:BKCC) is reporting results on May 1 and pricing will mostly be related to the outcome.
There are a few things to point regarding this table including it is not necessarily in an order from good to bad. The first group of suggested "Buys" is ranked by which ones are closer to three month lows and should be watched closely over the coming days. Ideally they will all bounce and that could indicate buying momentum. This will help to determine support levels in coming articles. Medley Capital (NYSE:MCC) reports later this week and will most likely cover dividends with an increased net asset value ("NAV") per share between $12.70 and $12.75. Prospect Capital (NASDAQ:PSEC) is near its well-tested $10.75 support price. THL Credit (NASDAQ:TCRD) was overpriced before the Russell announcement, has been falling since January after a disappointing quarter and is currently at 52 week lows.
I have also highlighted the BDCs that are further than most to the 52 week low. Keep in mind that I am not a "technical" trader so I do not use technical indicators to make decisions and "52 week low" is a general price. This would include TCP Capital (NASDAQ:TCPC), Main Street Capital (NYSE:MAIN) and Hercules Technology Growth Capital (NASDAQ:HTGC) all of which I consider to be higher quality BDCs that have consistently been priced at a premium and is probably why they have not fallen as much as the others. Personally I will be watching these for sizable dips to increase my position over the next two months. Other BDCs that are further from the 52 week low are Gladstone Capital (NASDAQ:GLAD), American Capital (NASDAQ:ACAS) and Full Circle Capital (FULL) all of which have had positive events announced recently to push stock prices higher.
KCAP Financial (NASDAQ:KCAP), Golub Capital BDC (NASDAQ:GBDC) and Triangle Capital (NYSE:TCAP) are considered "Holds' mostly due to pricing but close to near term support levels. Both GBDC and TCAP are quality companies that have historically been priced at a premium and I will also be watching for sizable declines to start a position.
I will try to update this table as much as possible and add more information regarding timing and pricing but investors should remain patient and be in the process of performing personal due diligence on BDCs that fit their investment criteria so that they can take advantage of upcoming pricing opportunities. Investors should only use this information as a starting point for due diligence.
Disclosure: I am long FSIC, HTGC, PSEC, MAIN, TCPC, FSC, ARCC, TCRD, NMFC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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