Russell joins S&P in booting BDCs from indexes; sector slips

|By:, SA News Editor

Unless the SEC changes the sector's fee-reporting standards by May 15, Russell told clients last night it will remove BDCs from its indexes during its June reconstitution.

Earlier calling such a move somewhat of a nonevent, Wells' team sounds like it's singing a different tune now. They believe there's a chance the SEC does change the rules, because not doing so would "likely drive sophisticated institutional capital away from the space." More: "We believe this is the very capital that is adept on calling out subpar BDCs. … In our view, a healthy and sophisticated public market is needed to ensure that only those deserving BDCs are the ones to receive the capital."

It's no little deal as an estimated 8% of all BDC shares are owned by funds benchmarked to the Russell 2000 index.

Index maker CRSP, whose benchmarks are tracked by Vanguard, already bars BDCs, calling them "essentially publicly traded private investment vehicles ... [we] excluded BDCs from the get-go, recognizing that they really don’t represent equity securities of the type that are trying to be captured in equity indexes."

In a big green down for the markets, most of the BDC sector is in the red. Prospect (PSEC -0.5%), Fifth Street (FSC -1.5%), Ares(ARCC -0.9%), BlackRock Kelso (BKCC -1.6%), Medley (MCC -0.9%) THL (TCPC -1.6%), NGP (NGPC -2.9%), New Mountain (NMFC -1.6%), PennantPark (PNNT -0.5%), Triangle (TCAP -0.7%).

ETFs: BDCL, BDCS, BIZD