EFC had an excellent quarter. EFC's diluted book value increased by 2.1% after paying a 0.41 dividend, resulting in an economic return of 4.3% in the quarter. It gets even better - the book value is up another $0.33 (1.71%) in April. I thought the company would perform well in volatile markets, but to be honest I never expected them to do this well, particularly with other mortgage REITs showing significant book value losses. What's more, EFC bought back 3% of stock and continues to buy back more.
With an April 30 diluted book value of $19.58 and recent price of $15.75, EFC trades at 19.6% discount. Although I have sold down a portion of my overweighted position, I am happy holding a core EFC position until it trades to 15% discount. I don't expect book value to increase as it has in the past few months, but I am content letting management optimize the portfolio and buy back stock, while I earn a 10.4% yield at an attractive discount.
FSIC, on the other hand, showed an NAV decline of 0.14 from $9.30 to $9.16. Factoring in the $0.19 dividend, FSIC had an economic return of 0.54% for the quarter. That performance is not terrible, but it is not great. With FSIC recently trading at $9.90, it is at a 13.8% discount to NAV, below my 15% sell target.
From the FSIC earnings call, I liked that management seemed committed to buying back stock. However, the size of the buyback is small in comparison to the market capitalization of the company -- at the current size it barely moves the needle. I am inclined to sell FSIC given that it has hit my discount target. Supporting my decision are the facts of another NAV decline, 13% of the portfolio repaying payment-in-kind (PIK) income (a kind of funny money in my view), and my cautious take on the prospects for credit investing as a whole.
That said, if you like the BDC sector and are not as an active trader as I am, I think FSIC is an ok hold here. They do plan on paying spillover income later in the year, so that could be a nice gift to shareholders. If they continue the stock buyback that could help cushion the stock from price declines. Finally, I can have a tendency to sell too early (as I did in CCT).
Disclosure: I am/we are long EFC.