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Nicholas Marshi
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Nicholas Marshi is the Chief Investment Officer of Southland Capital Management (SCM). The Company is a Registered Investment Adviser ("RIA") in Santa Monica, California. SCM's principal expertise is in the area of leveraged finance to U.S. private companies, with a focus on the... More
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BDC Reporter
  • MARKET NOTES: BDC Sector Trending Downward 3 comments
    Jan 28, 2013 11:20 AM | about stocks: BDCS

    With all the business news TV enthusiasm about new records for the S&P, one might suppose that BDC stock prices are booming alongside the general market. However, that's not the case. In fact, the BDC sector (as measured by the stock price performance of the BDC Exchange Traded Fund with the ticker BDCS) appears to have peaked in mid-month and has trended down since. Using adjusted price data (adjusting for the BDCS quarterly dividend paid early in January), the sector surged 5.0% for the first two weeks of the month, but has lost a third of that gain at time of writing.

    In fact, the gap between the S&P and the BDC sector has been widening. Today, using Yahoo Charts (which don't adjust for the dividend), the S&P is up over 5% and the BDC sector down -0.5%, using January 2nd 2013 as a starting point. See here.

    We don't know if the S&P is playing catch up with the BDC sector or enthusiasm for Leveraged Debt investments has (temporarily ?) peaked. We charted the performance of the XLF (the Financials ETF) as well as JNK (one of the two biggest junk bond ETFs) and BKLN (the largest Floating Rate Loan ETF). All of these indices performance was in line with the BDC sector, while the S&P booms. See here.

    Is this just a pause or a peak ? We are guessing the former, mostly because a low rate environment appears to be with us for many quarters, and the yield differential between BDCs and other Leveraged Debt and non-Leveraged Debt sectors (such as Real Estate Investment Trusts, Master Limited Partnerships, high dividend paying stocks, utilities etc.) remains substantial. On a "relative valuation basis" (as they say to mean by comparison to other alternatives) the BDC sector remains attractive, but subject to ever greater downside risks from profit taking (remember late last year), macro risks (sequester, Europe, Israel-Iran) and sector rotation, because the industry has had such a huge run up since 2011 (over 25%-see here).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: BDCS
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Comments (3)
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  • green tube
    , contributor
    Comments (424) | Send Message
    the BDCs have definitely lagged of late... although MCC has really bucked the trend.
    28 Jan 2013, 04:16 PM Reply Like
  • Be Here Now
    , contributor
    Comments (6304) | Send Message
    I found several other charts that show the same relationship.


    28 Jan 2013, 10:36 PM Reply Like
  • Nicholas Marshi
    , contributor
    Comments (573) | Send Message
    Author’s reply » That's very good data. Today, it also looks like High Yield has reached a plateau, and will be finding a new level. All the High Yield ETFs (and we cover virtually alll of them) are down, and the inverse ETF with the ticker SJB is up again for a third day in row, and had big volumes yesterday. We also see the floating rate Loan ETF down on the day. This is either profit taking or a pivot point. We'd bet pivot point, but with only minimal downside, as low rates are here for many quarters to come.
    30 Jan 2013, 02:12 PM Reply Like
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