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High-Yield BDC Sector Continues To Outperform The S&P 500 In 2019

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Includes: AFC, AINV, ARCC, CGBD, CPTA, FDUS, GAIN, GLAD, HTGC, MAIN, MCC, OCSL, PBB, PBC, PBY, PFLT, PNNT, PSEC, SUNS, TCRD, TPVG
by: BDC Buzz
BDC Buzz
Dividend investing, high income, BDCs, portfolio strategy
Summary

BDCs continue to outperform the S&P 500 and are still averaging 10.3% annual yield.

This article briefly discusses some of the reasons for the wide range of results.

Also discussed are the returns for their safer Baby Bonds, including one that I have recently sold.

As predicted in previous articles, business development companies ("BDC") continue to outperform the overall markets in 2019 with an average total return of around 22%. However, there is a wide range of results, and I will briefly discuss some of the reasons why as well as compare to the returns for many of the Baby Bonds that were discussed last week.

Overperformers

TPVG, GLAD, GAIN, FDUS, MAIN, HTGC, OCSL, and ARCC have all been among the top performers for net asset value ("NAV") per share performance recently. AINV, CGBD, and SUNS have had recent declines in NAV but were relative oversold going into 2019.

Underperformers

I do not actively cover many of these BDCs including MCC, BKCC, OXSQ, HCAP, SCM, HRZN, GECC, and SLRC, but many of them had increased credit issues reported in 2019. SLRC and SCM are some of the exceptions and not sure why they have been underperforming.

PNNT and PFLT are not doing as well as for the reasons discussed in "Recent And Upcoming Credit Issues For PennantPark". Also, TCPC has had some legacy credit issues discussed in "Digging Into The Credit Profile For 10.7% Yielding BlackRock TCP Capital". Please see my recent PSEC articles that discussed many credit issues that will likely get worse in the second half of the year.

BDC Baby Bond & Preferred Share Returns

As mentioned in "Balancing Your Portfolio With BDC Baby Bonds," I have been making select purchases of safer BDC baby bonds and preferred shares as I believe there will likely be a general market and/or BDC sector pullback in Q4 2019 for multiple reasons, including seasonal as well as taking profits (selling and locking in gains). However, some of these investments have been getting overvalued, and I have started selling as there is limited upside and will discuss in upcoming articles. As with BDCs, there is a wide range of returns:

Of course, many of the Baby Bonds that have underperformed are related to BDCs with credit issues and NAV declines such as MCC and CPTA (30% decline over the last 4 quarters) and TCRD (17% decline over the last 4 quarters).

Article Follow-Up

As discussed in "Best-Of-Breed BDC With Baby Bond Yielding 6.6%", I have previously made purchases of AFC that has done well this year. However, the price continued to increase and I sold my position on September 27, 2019, for the reasons discussed in "Sold AFC Baby Bond Today For The Following Reasons".

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