What we learned is that for every selling during their "Russell" rebalance woodshed period, there were equal numbers of buyers shopping the bargain bins for under-valued (under book value in many cases) high yielders.
I don't quite agree. The announcement of the removal was made a while ago (March??). What I think happened is in the first weeks of the announcement, short sellers dived into the BDCs, and most of them went from about 1.05x book value to 0.95x book value. I don't think BDC fundamentals changed at all in the months since the announcement, so that's the only reason I can give for why they moved down relative to book value, I think ALL of them experienced that.
Then in the past month, and especially the two days before the Russell rebalance, buyers appeared (or perhaps shorts covered, who knows) and now they are almost back to where they were - relative to book value - since before the announcement. It think they probably have a very small bit to go on the upside, but not enough to make a worthwhile trade, perhaps a percent or three upside.
Take the ones I follow closely - TICC used to always be above $10, it's still below $10.
PSEC used to always be above $11, it's not there yet, although they had their SEC thing in the meantime so that clouds their picture.
FSC is above it's previous level relative to book. It was depressed and around $9.30 for a long time, now it's up to $9.90. Might even have to sell that one, I bought it on the deep discount to book premise. Same story with AINV, it was always around $8.60, now it's up to $8.80.
So, there may not be much upside to the group left from the rebalancing affect. But that means BDCs should trade on their ACTUAL fundamentals. They seem like great investments to me in the crummy yield environment, so at least 1.1x book seems reasonable. But they'll probably settle in around 1.05x book value. PSEC still looks like a really good buy down here, I can't see why they shouldn't head back above $11 and linger around up there.
---
In hindsight the smart rebalancing trade was to just buy BDCL any time in the preceding 6 weeks and just sit and wait. You'd get about 10% capital gain while you wait to collect your dividend. I wish they paid monthly rather than quarterly. I got a bit of BDCL down below $26, but not too much. |
