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BDC Common Stocks Market Recap: Week Ended July 30, 2021

Posted on August 2, 2021
 
BDCs: ARCC, HTGC

BDC COMMON STOCKS

Week Thirty

 

Unperturbed

This was both the end of the month and the beginning of the IIQ 2021 BDC earnings season.

The markets  – or at least the commentators thereof – were racked with doubts about the direction of the economy; the outlook for the Fed and what coronavirus wreaks next on us.

Yet, BDC sector prices – and the major indices too – were relatively muted, seesawing up and down in a narrow range.

BDCZ – the UBS Exchange Traded Note which owns most every BDC stock and which we have traditionally used to measure sector price performance – was down (0.36%).

The prior week BDCZ was up +0.36%.

Seesaw.

(The Wilshire BDC Index – which tracks “total return” was down (0.18%) versus being up 0.31% the week previously).

Like the week before, out of 41 public BDCs we track, 22 were up in price or unchanged and 19 were down.

Also in a similar vein from the week before, very few BDCs moved much up or down in price.

Only 1 BDC moved down in price (3.0%) or more – the self imposed limit we use to measure price volatility.

That was Stellus Capital Investment (SCM), which fell (3.4%), but that was partly due to just paying out its dividend, which accentuated the week’s red ink.

No individual stock moved up 3.0% or more.

(The week before 1 BDC moved up by 3.0% or more and 3 moved down).

 

Not As Good

Looking at the data, there’s no doubt that the BDC sector has come off the boil since reaching a $20.29 52 week high on June 10, 2021.

Now, BDCZ is at $19.34, or (4.7%) down.

Moreover, in the last 50 days, the number of BDC stocks trading above their moving average has dropped to 13.

Back in mid-June every single BDC was trading above this 50 day metric.

Furthermore, the number of BDC stocks trading above book value has fallen from 22 to 15.

 

Deep Breath

Nonetheless – if we stand back and ignore short term noise – the BDC sector has remained very stable.

Using a 200 day moving average, all 41 BDCs are trading in the black.

33 of the 41 stocks are trading within 10% of their 52 week highs and none are anywhere near 52 week lows.

Over the past two months, BDCZ is down (1.3%), but has also paid out a quarterly distribution.

The BDC Wilshire Index – using the “total return” feature – is up 1.5% over an eight week period.

Which is all to say that the BDC sector – from a price and total return standpoint – remains in good shape after 15 months (!) of rallying off the early pandemic implosion.

Sticking Neck Out

We continue to believe that if no broader drama plays out in the markets – and notwithstanding this week’s slight drop – the BDC sector might yet exceed its June peak levels.

That was illustrated this week with two leading BDC players reaching new 52 week highs after posting good results.

First was  Ares Capital (ARCC), which reached a new high of $20.46.

Investors briefly rewarded the numero uno BDC for excellent IIQ 2021 results with a price surge to its highest level since 2007.

(However, ARCC took advantage of these moments of good feelings to undertake a second secondary share offering this year, at a price of $20.30.

As a result, the behemoth BDC ended the week at $19.97, (2.4%) below its peak).

Later in the week, Hercules Capital (HTGC) saw its intra-day price on Friday reach a $17.75 record,  following its earnings release.

As the chart below shows, HTGC – which has been around for 16 years – has never traded higher than currently.

These are good auguries that the markets have not fully discounted BDC results, and are willing to move prices higher.

 

Coming Attractions

Next week – with at least 27 BDCs reporting IIQ 2021 earnings – should provide telling insights about BDC fundamental performance, and investors reaction thereto.

Maybe we are being optimistic – a rare charge against the BDC Reporter – but we expect to see enough good news to move a needle that has been effectively frozen for the last many weeks.

As always, though, the wild card remains the pandemic, and the markets reaction to the ever growing caseload of infected individuals.

To date, the markets have maintained their composure, but if any sort of panic develops – even a mild one – what happens with BDC results will be inconsequential.

As always, the BDC Reporter will be there with our timely daily updates, bringing you the good, the bad and the (potentially) ugly outcome in near real-time.

 


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