Seeking Alpha

BDCs under pressure as leaders removed from S&P indices

  • Amid the dropping of Prospect Capital (PSEC -3%) from the S&P SmallCap 600 and Apollo Investment from the S&P MidCap 400, the business development sector is reeling a bit.
  • Ares Capital (ARCC -1.5%), Main Street (MAIN -1.8%), Blackrock Kelso (BKCC -3.3%), Triangle (TCAP -2.2%), TICC Capital (TICC -1.2%), PennantPark (PNNT -2.7%), THL Credit (TCRD -1.2%), Hercules Technology (HTGC -2.6%).
  • BDC ETFs: BDCL, BDCS, BIZD
  • See also: AINV with 12M share secondary
Comments (41)
  • papaone
    , contributor
    Comments (368) | Send Message
     
    Why were they dropped?
    25 Feb, 10:37 AM Reply Like
  • GregSoon
    , contributor
    Comments (150) | Send Message
     
    "New York, NY, February 24, 2014 – S&P Dow Jones Indices today announced that it has made several changes to the S&P U.S. Indices methodology effective after the close of trading on March 21 to coincide with the March rebalance. After consulting with clients concerned with certain reporting requirements, expenses, and investment restrictions relating to business development companies (BDCs), S&P Dow Jones has decided to remove all identified BDCs from its U.S. Indices. BDCs will remain eligible for certain other types of indices."
    http://bit.ly/1efQGAw
    25 Feb, 12:08 PM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (540) | Send Message
     
    Useful info. Thanks.
    25 Feb, 12:10 PM Reply Like
  • GregSoon
    , contributor
    Comments (150) | Send Message
     
    You're welcome.
    25 Feb, 12:39 PM Reply Like
  • brenda010
    , contributor
    Comments (3) | Send Message
     
    They were replaced on the exchange by 8x8 and a couple others
    25 Feb, 01:24 PM Reply Like
  • brenda010
    , contributor
    Comments (3) | Send Message
     
    They were replaced by 8x8 and a couple others on the exchange.
    25 Feb, 01:24 PM Reply Like
  • brenda010
    , contributor
    Comments (3) | Send Message
     
    Still long (bot @ 10.29) and may add to my position. Anything under 11.00 is a bargain in my opinion
    25 Feb, 01:24 PM Reply Like
  • Tack
    , contributor
    Comments (12704) | Send Message
     
    What a wonderful day to buy some of these names. Whether some issue is in or out of an index has absolutely nothing to do with their internal fundamentals. Hilarious that other BDC's not in any index are selling off in "sympathy," as if there's suddenly something wrong with the business model.
    25 Feb, 10:38 AM Reply Like
  • bwmaki
    , contributor
    Comments (364) | Send Message
     
    I don't know whether to laugh or cry sometimes at the ridiculousness of the market response to "news". Probably a good day to buy as this has absolutely nothing to do with the real price of the BDC cheese.
    25 Feb, 11:30 AM Reply Like
  • xxavatarxx
    , contributor
    Comments (2054) | Send Message
     
    +1 Tack
    25 Feb, 02:03 PM Reply Like
  • Archman Investor
    , contributor
    Comments (2350) | Send Message
     
    Drop is meaningless. These indexes are meaningless.

     

    All indexes should be removed. Stocks should just trade as is on their own. Indexes were created just as another marketing tool. Yes even way back when the DOW was created.
    Now more so as investment companies look to gather more fees from investors, that is why these indexes exist.

     

    Buy PSEC at book value
    25 Feb, 10:42 AM Reply Like
  • Niners 4 Life!
    , contributor
    Comments (504) | Send Message
     
    @ Arch-

     

    So you wouldn't buy psec til it drops to $10.73? I got that number from yahoo.
    25 Feb, 10:49 AM Reply Like
  • Archman Investor
    , contributor
    Comments (2350) | Send Message
     
    Niners:
    I do own PSEC. Some at book, some higher.

     

    I have found though, for those looking to add or perhaps start a new position it is best to buy closer to book value. Though receiving a 12% dividend / year kind of makes it all worth while anyway regardless of where you buy it.

     

    Just making a statement.

     

    Best to you.
    25 Feb, 10:52 AM Reply Like
  • locutus49
    , contributor
    Comments (879) | Send Message
     
    Great news for bargain-hunters.

     

    Long PSEC and buying below $11 (I think NAV is 10.80 or so).
    25 Feb, 10:50 AM Reply Like
  • R we there yet
    , contributor
    Comments (382) | Send Message
     
    Correct me if I am wrong with this thought but don't ETF's and index fund hold these shares? Wouldn't that put a real downward pressure on the stock price if they had to sell to follow the index?
    I know it has nothing to do with the actual corporation but only the price of a share.
    I guess Archman and Tack are right. Im watching other BDCs tank as well. Time to buy??
    25 Feb, 10:50 AM Reply Like
  • Tack
    , contributor
    Comments (12704) | Send Message
     
    Also, a great day to sell OTM puts for any issue under extreme pressure, like PSEC or AINV. I was recently able to sell July AINV $9's for $0.85. Just great. Either I bag an some or all of an easy 85 cents or I get AINV shares with a $8.15 basis.
    25 Feb, 11:08 AM Reply Like
  • TruffelPig
    , contributor
    Comments (4055) | Send Message
     
    I will do that! PSEC here I come!
    25 Feb, 11:27 AM Reply Like
  • vneathery
    , contributor
    Comments (64) | Send Message
     
    You are absolutely correct that there will be downward pressure. I can't opine on whether the drop in PSEC is a buying opportunity, but suspect it is. It sounds like Tack has a good idea about selling puts if you think PSEC is a long term hold.

     

    V
    Long MAIN.
    25 Feb, 11:51 AM Reply Like
  • Tack
    , contributor
    Comments (12704) | Send Message
     
    vn:

     

    It's unfortunate that PSEC's options are priced at $2.50 intervals and that the current price is near the midpoint. This is always the toughest situation in which to sell puts because the OTM puts at $10 don't carry much risk premium, and the ones at $12.50 have lots of ITM value and also little risk premium.

     

    AINV has $1 options strikes, so it's in a little better shape than PSEC for selling, but its price, too, unfortunately, is hovering in the dead middle of two strikes. Still, its risk premiums are higher.

     

    It's best when issues are right at or just above strike prices.
    25 Feb, 12:00 PM Reply Like
  • Tack
    , contributor
    Comments (12704) | Send Message
     
    Small correction: June, not July.
    25 Feb, 12:21 PM Reply Like
  • moose60061
    , contributor
    Comments (154) | Send Message
     
    Tack, see the action in AINV after close friday? Over 15 million shares bought, 12 million of them at 8.63 which was .07 above closing price. Largest block was 5,303,000................ it is about i have no clue.
    1 Mar, 09:29 AM Reply Like
  • Tack
    , contributor
    Comments (12704) | Send Message
     
    m:

     

    That was the closing of their share offering.
    1 Mar, 12:59 PM Reply Like
  • Conure
    , contributor
    Comments (109) | Send Message
     
    I am buying some BDC's today. Just keep an eye on them if/when interest rates go up!

     

    Looking at PSEC, MAIN, ARCC, HTGC
    25 Feb, 10:53 AM Reply Like
  • losbronces
    , contributor
    Comments (612) | Send Message
     
    Bought more PSEC & FSC. Really prefer PSEC under $11, but close enough to add a little.
    25 Feb, 10:55 AM Reply Like
  • Brucejfern
    , contributor
    Comments (1240) | Send Message
     
    It never ceases to amaze me even after 33 years of managing my own money how this type of event creates a lemmings off the cliff and a pox on all houses sell off.

     

    We don't even know if one or both BDCs removed from indexes are close to exceeding allowable capitalizations. We don't know any message is being sent by the indexes suggesting they no longer want BDCs in their respective indexes.

     

    It saddens me because it feeds investor cynicism about markets and the last thing we need is to lose another generation of investors that must look to long term investing if they want any semblance of a decent period of time called retirement or semi-retirement.
    25 Feb, 10:59 AM Reply Like
  • Davephd
    , contributor
    Comments (687) | Send Message
     
    I hope the Feds are looking at who went short these BDCs last few days.
    25 Feb, 11:05 AM Reply Like
  • New Superhuman
    , contributor
    Comments (1182) | Send Message
     
    Why should they when they already know -- the Fed and it's banking friends!
    27 Feb, 08:31 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8135) | Send Message
     
    People worldwide are DESPERATE for yield.

     

    Deflation will continue to prop up the BDCs.
    25 Feb, 11:21 AM Reply Like
  • RickyC
    , contributor
    Comments (47) | Send Message
     
    I went to the S&P Small Cap 600 website and they are dropping all BDCs. Also, they state that in order to be included in that index a company, among other requirements, must have increasing earnings during the last four quarters.
    Why they are making a blanket decision on all BDCs is unknown to me. The bigger investors probably know why.
    Many of the BDCs have terrible looking 10-Ks and 10-Qs. However, PSEC has some good managers so I'm buying more stock on this dip.
    25 Feb, 12:06 PM Reply Like
  • Brucejfern
    , contributor
    Comments (1240) | Send Message
     
    Ricky,

     

    S&P 500 is still feeling the sting of finally admitting ACAS and then ACAS went into the sinkhole. MLPs as an asset class have been ignored for many years too. Well now they are outperforming reits and all of the sudden a lot of people are taking notice and MLPs are generally excluded from major exchange indexes. So what, I like under the radar stuff that is not in the hands of the "shoot first, never ask the right questions" types of investors anyway.
    25 Feb, 12:34 PM Reply Like
  • doc47
    , contributor
    Comments (992) | Send Message
     
    Long TCAP. Love this silly dip. They are about to go EX on a special dividend and their quarterly in two weeks or less. I'll be longer TCAP now!
    25 Feb, 12:21 PM Reply Like
  • Thecult13
    , contributor
    Comment (1) | Send Message
     
    I'm no expert but looking at the requirements for the S&P SmallCap 600 it looks for companies in the "US$ 350 million to US$ 1.6 billion for the S&P SmallCap 600"
    PSEC has a market cap of 3.43 billion and was to big for their small pond.

     

    source : page 5 http://bit.ly/1mFqnsY

     

    disclosure: long PSEC
    25 Feb, 01:24 PM Reply Like
  • c21vintage
    , contributor
    Comments (26) | Send Message
     
    I've owned this stock for nearly 5 years now, average cost basis is about $9.50/share if you don't deduct the dividends I've gotten and it pays off like you only wish a slot machine does. It may have been dropped from small cap index because it's grown so much by constantly issuing shares and putting that $$$ to use making more loans that it no longer fits in the "small" category. Read an analysis just the other day that said loan value is now $16 per share, about 98% of profits are paid to stockholders and due to excellent management very low default rates, even when times were rough. I think a good argument can be made that fair value is more like $15/share. I re-invest my dividends taking my yield from 12% to about 14% when compounded. I am a VERY satisfied long term investor and a few cent drop doesn't bother me in the least.
    25 Feb, 01:24 PM Reply Like
  • Trumpace
    , contributor
    Comments (52) | Send Message
     
    I too own PSEC and will continue to hold because it is the best of the BDC's. S&P from what I saw just reacted to some clients concerns on the way BDC's report. Instead of doing the hard work by looking at each BDC and making a decision to keep or drop, S&P used a broad stroke brush and most likely a computer program to remove them. This is to happen March 21st. So call them and express your concerns and questions as to real reasons if you want. I don't think it was the right decision but they can do what they like, it is their index. As far as I am concerned it is not a big deal in the end. If a BDC is strong and run well the pps will take care of itself in the end.
    25 Feb, 04:31 PM Reply Like
  • moose60061
    , contributor
    Comments (154) | Send Message
     
    if they are being removed Mar. 2st, do indexes have to hold them until then or can they sell them out now?
    26 Feb, 11:39 AM Reply Like
  • Trumpace
    , contributor
    Comments (52) | Send Message
     
    I think they have now until then to adjust. I also heard that S&P will have a BDC index. But I will believe that when I see it. I do think that is a good idea though. If that is true then buying will come back and maybe now is a good time to take advantage of that. Anyone else hear of this new BDC index?
    26 Feb, 12:25 PM Reply Like
  • Tack
    , contributor
    Comments (12704) | Send Message
     
    The BDC hysteria is over, already. Lots of issues oversold for no reason at all.
    26 Feb, 06:31 PM Reply Like
  • moose60061
    , contributor
    Comments (154) | Send Message
     
    Tack, they are not oversold for no reason. We are clearly discussing the reason here. They must be sold by funds like IJS 600 by march 21st.
    27 Feb, 08:39 AM Reply Like
  • losbronces
    , contributor
    Comments (612) | Send Message
     
    There are three BDCs that must be sold as a result of S&P's index change. There is no reason to sell the others. But people panic, just like with MLPs a bit of bad news for one often leads to an unwarranted sell-off for others.
    27 Feb, 10:01 AM Reply Like
  • moose60061
    , contributor
    Comments (154) | Send Message
     
    losbronces, there are many more than 3 BDC's in the IJS 600.
    28 Feb, 08:36 AM Reply Like
  • losbronces
    , contributor
    Comments (612) | Send Message
     
    They were the only ones I saw mentioned in the articles I read. The others may be very low percentages.
    28 Feb, 10:14 AM Reply Like
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