BDC Common Stocks Market Recap : Week Ended April 1, 2021

WEEK THIRTEEN

No Jinx

Week thirteen of 2021 – despite being curtailed by the Good Friday holiday – was a fortunate one for BDC investors.

For a second week in a row, BDC prices moved up, essentially reversing all the losses we discussed in the BDC Market Recap of March 19, 2021.

By Thursday’s close – April Fool’s Day – the UBS Exchange Traded Note with the ticker BDCZ – reached $18.85.

That’s just below the closing high of $18.88 set on March 15, 2021 just before sector prices pulled back modestly.

All this is illustrated in the BDCZ 2021 year-to-date chart below:

Total Returns

Likewise – and validating the BDCZ data – the  S&P BDC index – which offers a “total return” – also closed close to that mid-March peak.

As of Thursday, that index was just (0.06%) below the March 15 level.

All Good

Of the 43 public BDCs whose price we track, 34 were unchanged or up in price.

12 stocks increased by 3.0% or more, the best result in 3 weeks in this category.

Down and Up

The top performer was one of the BDCs with the smallest market capitalization and float: Great Elm Capital (GECC): up 8.3%.

No, we cannot explain why GECC led the entire pack.

The BDC has not reported anything new since March 18 and – to the best of our knowledge – there’s been no other material development in its portfolio.

We looked at the daily volume traded for any clues but there was nothing out of the ordinary.

We can’t even point to a stock repurchase program as a potential cause for the price uptick.

As far as we can tell, GECC is no longer buying back its common stock, keeping its relatively meager excess cash resources to potentially buy-back some of its four Baby Bonds outstanding.

As in so much in life, the fluctuations in GECC price are a mystery.

One And Only

There was only one BDC which dropped (3.0%) or more this week.

That was Oxford Square Capital (OXSQ) which we discussed last week  as the biggest winner after its stock jumped 10.95%.

In a very typical example of BDC reversal of fortune, OXSQ gave up (3.6%) this week.

We imagine this is a matter of profit-taking after a remarkable run in recent months:

Perspective

One quarter and one day into 2021, the BDC sector continues to ride high.

The S&P BDC index is up 17.11% in this period.

According to Seeking Alpha data, every single stock has increased in price this year, from as little as 3% (TSLX) to 50% (OXSQ).

If we measure back to the beginning of this rally – around Halloween 2020 – this upward path has been going on for 5 months.

In that period – and again on a total return basis – the BDC sector is up 41%.

Further Back

We can now see that after the huge drop in BDC prices brought on by the pandemic, which reached a nadir on 3/30/2020, some investors rushed back in.

That lasted till June 1, 2020 and was followed by a period of wait-and-see.

The all-clear sign seems to have come with the first BDC earnings releases for IIIQ 2020, beginning with Ares Capital (ARCC) on October 27, 2021.

Since then,  many more BDC investors have regained their confidence, sparking this ongoing rally.

At the moment there are no signs – despite a couple of stumbles along the way – that these days of wine and roses are at an end.

The IQ 2021 BDC earnings season is beginning to come into focus (see the BDC Earnings Calendar) with ARCC reporting on April 28, 2021.

That might be the next opportunity for the sector to move even higher or to have second thoughts.