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BDC Market Weekly Review: Breaking Down Shareholder-Friendly Fee Structures

Dec. 04, 2021 7:05 AM ETCGBD, CCAP, NMFC, TCPC, TCRW, WHF9 Comments


  • We take a look at the action in BDCs through the fourth week of November and highlight some of the key themes we are watching.
  • Like September, November is likely to be another write-off for BDC investors. However, the strong price action in October has more than made up for these two middling months.
  • We break down BDC fee structures with the key takeaway that investors should focus on more than just the lookback feature, as important as it is.
  • Redemptions continue in the BDC bond space which further limit investor options in the space.
  • We highlight WHF which we recently added to our coverage in the BDC Tool.
  • Looking for a helping hand in the market? Members of Systematic Income get exclusive ideas and guidance to navigate any climate. Learn More »

Trading Charts on a Display

da-kuk/E+ via Getty Images

This article was first released to Systematic Income subscribers and free trials on Nov. 26.

Welcome to another installment of our BDC Market Weekly Review where we discuss market activity in the Business Development Company

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This article was written by

ADS Analytics profile picture

ADS Analytics is a team of analysts with experience in research and trading departments at several industry-leading global investment banks. They focus on generating income ideas from a range of security types including: CEFs, ETFs and mutual funds, BDCs as well as individual preferred stocks and baby bonds.

ADS Analytics runs the investing group Systematic Income which features 3 different portfolios for a range of yield targets as well interactive tools for investors, daily updates and a vibrant community.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CGBD, TCPC, NMFC either through stock ownership, options, or other derivatives. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (9)

BartAtTheRanch profile picture
@ADS Analytics

Thanks for the article. As always, important to look across the sector and glad to have the addition of WHF but might be good to describe the effects of their recent secondary, which proved to be a good buying opportunity despite the lethargy (at best!) of the sector recently

WHF has been a name we have returned to frequently and which might be in yet more demand given (as you describe) that the sector may be cooling for greater equity holding names (see BDCBuzz's recent article on PNNT)..

WHF's non-accrual rate may be near sector average, but might be worth looking at their cumulative realised gains and losses for those considering a longer term investment.

In the short term it is difficult to see where the best opportunities lies for trading shares - are any of four names (OCSL, CGBD, NMFC and TCPC) you clearly show as in the "sweeter" part of the sector by valuation and RSI and three of which you hold thought by you as "trading positions"? Are there any that (in that sweeter area or not) that you consider longer-term holds? If so, which ones?

BartAtTheRanch profile picture

PS Might be similarly useful to compare credit quality in a similar way across the sector (and beyond just the mention of an approximate average of 1.3% of non-accruals, though that is a good starting point.)

Do your "averages" come from the "BDC universe" you include in the graphic showing month-to-date returns?
ADS Analytics profile picture
@BartAtTheRanch I don't make a distinction between "trading positions" or longer-term holds. I highlight what I find to offer attractive risk/reward and some people treat that as a trading position and other as a long-term hold.

In terms of realized gains/losses my view is that if you look at total NAV returns that takes everything into account i.e. imagine you found a company that appeared to have high realized losses but it also had a relatively high total NAV return - would you avoid it? At the end of the day the company delivered very strong book returns and realized losses were offset by a high level of dividends and possibly unrealized gains. Realized losses are just part of the picture. There is an argument to be made that a company with nil realized losses is not taking sufficient risk.

My sense is that people focus on realized gains/losses because it's harder to put together a total NAV return profile so they use that as a proxy of whether a given BDC burned capital or not.
BartAtTheRanch profile picture
@ADS Analytics

In either case (cumulative realised g/l or total NAV return) my search is for companies that do well (preferably in both) over a significant time period. since such companies are likely to have that very hard to define quality of "good management" (that's why I mention cumulative realised gains).While those stocks might be the better long term holds, this should not prevent you from trading in and out of a name which is a reasonably good prospect in the short term even if it only seems to have "average" quality management. WHF might fit that role.

Do any of the BDCs you hold seem to you to have such management?

Thanks again for the survey of the sector!

papaone profile picture
I invest exclusively in BDC's using BDCBUZZ as my authority plus my review.
Presently, I'm completely out of the market. I would like to see what actions the Fed will take and when.
Inflation is most certainly here. and the good news-- BDC's mostly have a floating rate portfolio, combined with a low cost of capital.
It now looks to me like a January reentry buying my favorites.
@ADS Analytics Thank you for this. These graphs are very useful.
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