Why Consider BDC ETNs Now?

Of the 38 components of Wells Fargo Diversified Business Development Company Index, 37 have declared dividends with ex-dates in the third quarter of 2020. Thus, they will contribute to the quarterly dividends to be paid by the ETRACS ETNs, sponsored by UBS Group AG (UBS), that are based on indices of business development companies. One index component, Monroe Capital Corp. (MRCC) has not yet announced any dividends with ex-dates in the third quarter of 2020. However, MRCC has told me that “The next dividend will be paid on 9/30”. Thus, it will contribute to the dividends paid by the BDC ETNs in October 2020.

I was somewhat surprised to see that many of the business development companies in the index have not reduced their QIII dividends, relative to the pre-Covid-19 levels. That is in contrast to the REITs and mREITs where a significant number of them have reduced or eliminated their dividends since March 2020. It is possible that many of the business development companies have not made the adjustments to their dividends yet, and will do so in the future. However, it seems to me that they should have a fairly good idea of whether Covid-19 has impaired their portfolio investments, by now.

Even though many of the business development companies have maintained their dividends, their share prices have underperformed. Since June 19, 2020, neither ETRACS Linked to the Wells Fargo Business Development Company Index ETN (BDCS) nor the SPDR S&P 500 ETF (SPY) have had any ex-dates. Thus, the ratio of the price of BDCS to SPY accurately shows the relative performance of BDCS. As shown on the chart below. From June 19, 2020, when BDCS closed at $14.21, and SPY at 308.64 to September 2, 2020, BDCS significantly underperformed SPY.

As the chart below shows, the business development companies have been particularly unloved by the market. A typical Seeking Alpha headline is: Some BDCs may face funding squeeze as portfolio defaults rise. The small and medium-sized companies that the business development companies hold stakes in, are considered, by many market participants, to be very vulnerable to the impacts of Covid-19. That is true in some cases. However, Covid-19 has impacted various sectors in quite divergent ways. As I said in: American Airlines May Be The First Airline Bankruptcy, But It Will Not Be The Last

…There are some sectors of the economy that can get through Covid-19 relatively unscathed. If you must wear a mask to buy groceries, you will wear a mask or have the groceries delivered. Similarly, manufacturing can resume, once stay-at-home orders are lifted, if health precautions are put in place.

The travel, hospitality and tourism sectors are still remaining relatively depressed. Even within that sector, airlines are the worst of the worst… ..Hotels can be possibly repurposed as residential units or other commercial uses. For relatively shorter trips, Covid-19 makes automobiles now much more attractive than air travel. People in cars don’t wear masks, sit near strangers or interact with others in airports. Maintaining social distancing when traveling with children, is much easier when traveling by car, than by air. Even the beleaguered car rental industry is taking market share from airlines in the short-haul trip market.

World-wide, businesses have gone through the process of learning how to conduct meetings using technology such as that from Zoom Video Communications, Inc. (ZM) or Teams from Microsoft (MSFT). It remains to be seen how much the damage will be to air travel in the long-term from those. However, the familiarization and expertise gained in the use of those technologies will not be forgotten or unlearned.

All the worlds’ airlines are suffering from unprecedented declines in revenue. However, among airlines in the developed world, American Airlines are facing additional problems. The world is devolving into two categories of countries with regard to Covid-19. Those countries with Covid-19 and those without. New Zealand and Iceland have already reported no new cases of Covid-19. Australia, Taiwan, Hong Kong, Denmark, Greece and South Korea are well on their way in totally eradicating Covid-19. Countries that have or are very close to eradicating Covid-19 are now working on plans for a “travel bubble” where travel between those countries will not be restricted. As other countries also eradicate Covid-19, travel between them will be allowed without 14-day mandatory quarantines upon arrival. America will almost certainly be among the last developed countries to have no Covid-19 cases…

More so than in any prior recession or depression, the current business downturn has been very concentrated in certain sectors, while some other businesses did much better. This is likely due to the unprecedented quick enormous government policy actions that were put in place, as the need for such measures became immediately apparent. As I said in, The Economy May Fall Off The $600 Cliff

…In prior recessions, where a political consensus that fiscal stimulus should be enacted evolved over a period of time, the stimulus typically took the form of tax cuts and public-works type spending. Likewise, monetary stimulus was also applied typically at a gradual pace. With the Covid-19 pandemic related shut-downs of economic activity, the unemployment rate went from 3.5% in February 2020 to 14.7% in April 2020. Thus, the need for immediate stimulus became apparent…

More so than in any prior recession or depression, the current business downturn has been very concentrated in certain sectors, while some other businesses did much better. This is likely due to the unprecedented quick and enormous government policy actions that were put in place, as the need for such measures became immediately apparent.

As I said in, The Economy May Fall Off The $600 Cliff

…In prior recessions, where a political consensus that fiscal stimulus should be enacted evolved over a period of time, the stimulus typically took the form of tax cuts and public-works type spending. Likewise, monetary stimulus was also applied typically at a gradual pace. With the Covid-19 pandemic related shut-downs of economic activity, the unemployment rate went from 3.5% in February 2020 to 14.7% in April 2020. Thus, the need for immediate stimulus became apparent…

There is considerable uncertainty regarding future Covid-19 relief legislation. The $600 supplemental weekly unemployment benefit allowed retail sales to actually increase relative to earlier levels. That has expired, but there is some possibility that it may be reinstated, possibly at a lower level. There is also the executive action which should give many unemployed an extra $300 per week retroactive to August 1, 2020, at least for some period of time.

Most of the investments by business development companies take the form of secured first-lien loans with adjustable interest rates typically 5 or more percentage points above LIBOR. It is possible that most of the small to medium-sized companies, may get through the Covid-19 pandemic related shut-downs of economic activity in good enough shape not to default on their obligations to the business development companies. Thus, many business development companies should be able to maintain their dividends.

Why Leveraged ETNs

Very low short-term interest rates, make carry-type trades attractive, particularly for those seeking to maximize current income. Leveraged ETNs, emulate a portfolio that borrows to enhance current yield. The leverage is implicitly financed at rate based on LIBOR plus a modest spread. For BDCY the rate is three-month LIBOR + 0.80%. With three-month LIBOR currently around 0.25% the financing rate is now 1.05%. That is lower than most retail brokerage margin accounts charge. For example, Fidelity charges 8.325% for margin balances less than $24,999. The Fidelity margin interest rate declines to 4.0% for balances above $1,000,000.

In my first Seeking Alpha article published on June 21, 2013, Federal Reserve Actually Propping Up Interest Rates: What This Means For mREITs, I set forth a proposition that contrary to the widely held belief that the Federal Reserve was artificially depressing interest rates, it was actually preventing them from falling even more than their then very low levels. Additionally, as described in my July 11, 2013, Seeking Alpha article, A Depression With Benefits: The Macro Case For mREITs, my premise was that government policies shifting the tax burden from the rich and onto the middle class results in much more funds being available for investment relative to productive uses for those investable funds. That tends to put downward pressure on interest rates.

These two articles were the basis for my view that interest rates would be lower and for longer than was the then current consensus. Many market participants thought that the Federal Reserve would continue raising rates for much longer than they actually have done. The relative decline in the share prices of the BDCs and the relative resiliency , of their dividends has resulted in high current yields. Three BDC ETNs are: the ETRACS 2x Monthly Leveraged Wells Fargo Diversified Business Development Company Index ETN Series B (BDCY), BDCS and the ETRACS Quarterly Pay 1.5x Wells Fargo BDC Index ETN (BDCX). Each of these ETRACs ETNs pay quarterly dividends. The word “Monthly” in the BDCY name, refers to the monthly rebalancing done to maintain the 2x leverage.

While typically called dividends, the monthly payments from BCDY and the other ETNs are technically distributions of interest payments on the ETN note based on the dividends paid by the securities that comprise the index, upon which the ETN is based, pursuant to the terms of the indenture. Thus, when dealing with ETNs, the terms “dividend” “coupon” and “distribution” are used interchangeably.

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The highest yielding ETRACS ETN is BDCY. As shown in Table I below, BDCY has a current yield of 20.63%, using data as of August 28, 2020. Prior to the March 2020 debacle, the 2x leveraged ETNs based on indices of mREITs generally had higher current yields than those based on indices of business development companies. There are no 2x leveraged ETNs base on mREITs from UBS anymore. As was discussed in Buy REML And mREITs Because Of High Yields Or Discounts To Book Value, UBS recently started the ETRACS Monthly Pay 1.5X Leveraged Mortgage REIT ETN (MVRL). The Table I below based on information from the UBS ETRACS website, does not show a current yield for MVRL since UBS has not published three months of dividends for it yet. However, in the Seeking Alpha article cited above, I said:

….Using the three months MVRL coupons ending with my projected September 2020 MVRL coupon of $0.0655 gives a current yield of 13.32% using the August 17, 2020, MVRL net indicative (asset) value. Since only two, MVRL monthly dividends have been declared so far, the UBS website does not show any current yield for MVRL…

One 2x leveraged ETNs base on mREITs, survived the March 2020 debacle, which the Credit Suisse X-Links Monthly Pay 2x Leveraged Mortgage REIT ETN (REML). REML is based on the FTSE NAREIT All Mortgage Capped Index. MVRL is based on the MVIS US Mortgage REITs Index. The previously cited Seeking Alpha article included:

…The CS website using the August 17, 2020, REML net indicative (asset) value shows a current yield of 17.37%. That is based on the three months REML coupons ending with August 2020. Using the three months REML coupons ending with my projected September 2020 REML coupon of $0.0142 gives a current yield of 16.0% using the August 17, 2020, REML net indicative (asset) value…

That article also mentioned covered-call commodity ETNs sponsored by CS. These track the performance of indices that employ a strategy of selling 6% out-of-the-money call options against the ETFs that in turn track the specific commodities. One of the covered-call commodity ETNs, X-Links Crude Oil Shares Covered Call ETN (USOI) had a current yield of 84.67%.

Table I: Selected ETRACS ETNs

NAME

INDICATIVE VALUE

LEVERAGE

CURRENT YIELD (ANNUALIZED)

ETRACS Quarterly Pay 1.5x Leveraged Wells Fargo BDC Index ETN (BDCX)

$ 25.18

1.5x

13.22%*

ETRACS 2x Monthly Leveraged Wells Fargo Diversified Business Development Company Index ETN Series B (BDCY)

$ 7.54

2x

20.63%*

ETRACS Linked to the Wells Fargo Business Development Company Index ETN (BDCS)

$ 14.33

10.22%*

ETRACS Monthly Pay 2xLeveraged US High Dividend Low Volatility ETN Series B (HDLB)

10.9

2x

11.23%**

ETRACS Monthly Pay 2xLeveraged Wells Fargo MLP Ex-Energy ETN Series B (LMLB)

$ 8.06

2x

16.44%**

ETRACS Quarterly Pay 1.5x Leveraged Alerian MLP Index ETN (MLPR)

$ 20.85

0.00%*

ETRACS Monthly Pay 1.5x Leveraged Mortgage REIT ETN (MVRL)

$ 31.78

ETRACS Monthly Pay 2xLeveraged Preferred Stock ETN (PPFL)

$ 18.18

2x

10.07%**

ETRACS Monthly Pay 2xLeveraged S&P Dividend ETN (SDYL)

$ 76.76

2x

5.81%**

ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN Series B (SMHB)

$ 5.54

2x

11.36%**

* “Current Yield (annualized)” equals the most recently announced Coupon Amount, multiplied by four (to annualize such coupons), divided by the Current Indicative Value of the ETN, or, if the Current Indicative Value is not available, then the most recent closing Indicative Value, and rounded to two decimal places for ease of analysis. The Current Yield is not indicative of future coupon payments, if any, on the ETN. You are not guaranteed any coupon or distribution amount under the ETN

** “Current Yield (annualized)” equals the sum of the most recently announced Coupon Amount and the two immediately preceding Coupon Amounts, multiplied by four (to annualize such coupons), divided by the Current Indicative Value of the ETN, or, if the Current Indicative Value is not available, then the most recent closing Indicative Value, and rounded to two decimal places for ease of analysis. The Current Yield is not indicative of future coupon payments, if any, on the ETN. You are not guaranteed any coupon or distribution amount under the ETN.

ETNs or ETFs

Much discussion has focused on the differences between ETNs and investment companies, such as ETFs and mutual funds, where the ETFs and ETNs both focus on similar securities. An example of an ETF and ETN pair that illustrates this is: REML and iShares Mortgage ETF (REM). REM is based on the same index of mREITs as REML. However, REM is a fund rather than a note and it does not employ the 2X leverage that REML does. REM also pays dividends quarterly rather than monthly. As a fund, the dividend is discretionary by the fund management as long as it distributes the required percentage of taxable income to maintain its investment company status.

The discussion of the differences between ETNs and investments companies has mostly involved the risks that ETNs pose. ETNs are unsecured obligations of the issuer. Thus, they entail the credit risk of the issuer. Investment companies such as REM must follow the requirements of the Investment Company of 1940. That includes having the portfolio securities held by a custodian, segregated from the management company’s assets. Thus, if BlackRock, Inc. (BLK), the sponsor and manager of REM, were to go bankrupt, the value of REM would still depend only on the value of mREITs held in its portfolio. When Lehman Brothers collapsed in 2008, there was no credit risk to the holders of mutual funds and ETFs managed by Lehman Brothers.

The value and performance of derivatives, such as options and futures, is derived from some other asset or index of assets. ETNs legally are derivatives whose value depends on the performance of some other asset or index of assets. CS and UBS do not legally have to actually own any of the securities or other assets upon which the value and performance of their ETNs is derived from. This has led some people, who do not understand the financial services industry, to assume that CS and UBS do not actually own the securities or other assets upon which the value and performance of the ETNs is derived from. That is not the case. In terms of financial theory, the ETNs do not operate under the “bucket shop” assumption that derivatives such as options and futures do.

The “bucket shop” assumption, is that one counterparty of a derivative is betting against the other. Thus, the buyer of a call option is betting that the price of the underlying security rises, and the seller of the call option is betting that the price of the underlying security falls. The open interest for any series of options or futures is how many are outstanding. The number of long options or futures is exactly the same and the of short positions in those options or futures. For every buyer, there must be a seller.

A key implication of the “bucket shop” assumption is that transactions in derivatives for which the “bucket shop” assumption applies do not impact the price of the underlying security, since, for every buyer, there is a seller. This is analogous to people betting on the Super-bowl football game. People betting do not impact the outcome of the game. In contrast, investors putting more money into a mutual fund can impact the price of the securities held by the fund, when the fund in turn purchases securities in response to the inflow of money. When more shares of REM are created and sold to the public, BLK buys more mREITs. When shares of REM are liquidated by the public, BLK sells mREITs.

Some people incorrectly assumed that since CS and UBS are not required to buy or sell mREITs when the size of REML or MVRL changes, they do not do so, and are thus betting against the holders of REML and MVRL. Some of those without knowledge of the financial services industry and the asset management sector, in particular, thought that CS and UBS created the leveraged ETNs for the purpose of borrowing money from the public and then profiting when the ETNs were liquidated at prices much lower than the original issue prices. UBS did not profit or lose when their 2X-leveraged ETNs were accelerated. However, in terms of future cash flows, UBS did lose the expected revenue from the fees that they would have collected in the future had the 2X-leveraged ETNs still existed.

If CS and UBS wanted to bet that mREITs would decline in value, there are much more efficient ways they could have done so. ETNs are created to circumvent the various restrictions and expenses that apply to investment companies registered under the 1940 Act. For REML, the 2X leverage is an obvious factor. Investment companies must maintain 300% asset coverage for all borrowings. This precludes the use of leverage higher than 1.5X. It might be noted that UBS could have created an ETF that used 1.5X leverage, and which could have owned the exact same mREITs as the index that MVRL is based on, rather than have MVRL be an ETN. They did not do so.

Very large major financial institutions, such CS and UBS use the ETN structure because they can, and only they can. No rational investor would buy an ETN, where, in addition to the risk arising from the securities in the index upon which the ETN was based, there was significant credit risk associated with the issuer. Thus, only issuers like CS and UBS that are considered by market participants to be close to risk-free in terms of default risk, can issue ETNs.

By using the ETN structure, they can avoid the requirements and restrictions that apply to investment companies registered under the 1940 Act. In addition to the limitations on the use of leverage, using the ETN structure can allow them avoid all the 1940 Act restrictions on self-dealing. Thus, CS can buy and sell the mREITs that it owns to offset the REML liability, using its own brokerage firm and “lend” money to finance the portfolio at an attractive LIBOR+0.85% interest rate. UBS and CS lend money to other borrowers who use mortgage-backed securities as collateral at lower interest rates than LIBOR+0.85%. Thus, “lending” to their own ETNs is advantageous. Prominent among the borrowers who use mortgage-backed securities as collateral are the very same mREITs that are in the index upon which, REML is based. Another advantage for ETN issuers arises in the area security lending. Most institutional investors lend out portfolio holdings and are paid stock-loan fees. For investment companies, such security lending fees must accrue to the benefit of the fund’s shareholders. With ETNs, those fees go into the issuers’ pockets.

In addition to avoiding all of the restrictions on self-dealing, using the ETN structure avoids the requirements for semi-annual and annual reports that require independent audits, which apply to investment companies registered under the 1940 Act. Additionally, registered investment companies have shareholder meetings which require the filing, printing and mailing of proxy statements at times. Investment companies such as REM are required to have a board of directors, a majority of which, including the chair-person of the board, must be totally independent of the manager. This means that it is possible, although unlikely, that the independent board of REM could decide one day, that BLK will no longer be the manager of REM, but some other company, like Fidelity or Vanguard would be instead. Were that to happen, BLK would have to mount an expensive proxy contest in an effort to protect its investment, with no guarantee of success. No such risk exists with ETNs.

Analysis of the October 2020 BDCY, BDCS and BDCX Dividend Projections

The tables below show the components of BDCY, BDCS and BDCX along with the price, weight, dividend, ex-dividend date and contribution to the third quarter BDCY, BDCS and BDCX dividend, for each. The dividends listed in the table are the sum of the dividends that will impact the quarterly dividend. Thus, for a monthly payer, the figure in the dividend column is the sum of the three monthly dividends with ex-dates in the third quarter. Likewise, any special dividends with ex-dates in the third quarter are added to the regular dividends. In the frequency column, “q” denotes quarterly and those that pay monthly have an “m”. From this data, I calculated a projection for the next quarterly dividend of BCDY of $0.4632. That would imply a current yield of 25%, using the methodology that UBS uses. For BDCS I calculated a projection for the next quarterly dividend of $0.4246. For BDCX I calculated a projection for the next quarterly dividend of $1.1191.

There were some factors and changes that will impact the October 2020 dividends for the ETRACs BDC ETNs. Sixth Street Specialty Lending (TSLX), which changed its name from TPG Specialty Lending Inc. (TSLX), but the prior quarter also had a $0.25 special dividend. Apollo Investment Corp (AINV) paid a $0.45 in the second quarter of 2020. In the third quarter there was a regular dividend of $0.31 and special dividend of $0.05. Thus, as shown in the tables below, a total of $0.36 from AINV will contribute to the October 2020 quarterly dividends. BlackRock TCP Capital Corp (TCPC) increased its quarterly dividend to $0.36 from $0.30. Oaktree Specialty Lending Corporation (OCSL) increased its quarterly dividend to $0.105 from $0.095. Newtek Business Services Corp (NEWT) had no dividends with ex-dates in the second quarter. NEWT has two dividends in the third totaling $1.14. Stellus Capital Investment Corp (SCM) had no dividends with ex-dates in the second quarter. SCM has two dividends in the third totaling $0.50. BlackRock Kelso Capital Corp (BKCC) increased its quarterly dividend to $0.10 from $0.02. Oxford Square Capital Corp (OXSQ) decreased its monthly dividends in the third quarter to $0.35 from $0.067 in the second quarter. Thus, OXSQ dividends totaling $0.105 will contribute to the October 2020 quarterly dividends. Solar Senior Capital Ltd (SUNS) decreased its monthly dividends to $0.10 from $0.1175 in May 2020. Thus, SUNS dividends totaling $0.30 will contribute to the October 2020 quarterly dividends. Sutter Rock Capital Corp (SSSS) and Saratoga Investment Corp (SAR) both resumed dividends in the third quarter after not paying them in the second quarter.

Conclusions and Recommendations

The relative underperformance of the BDC sector and the ability of many of the BDCs to maintain or even increase their dividends make the sector attractive. Some investors may be able to analyze individual BDCs. I looked at the recent 10-Q for the largest component of the index upon which BDCY is based, Golub Capital BDC Inc. (GBDC). It had literally hundreds of individual investments in its portfolio. Mostly, the investments were loans to companies, for which little easily obtainable information is available. Thus, ETNs based on BDCs are how I invest in that sector, rather than buying individual BDCs.

Today’s very short-term interest rates boost the current yields for the leveraged ETNs: BCDY and BDCX. I generally try to maximize current yield. Thus, 2x-leveraged BDCY is the most attractive for me. For those who wish to avoid leverage, BDCS is an unleveraged ETN, that still has a double-digit current yield. BDCX, with 1.5x leverage, could be a comprise between BCDY and BDCS.

The trading volume of BDCX is extremely low. For the 90-day period ending on September 3, 2020, the average daily volume was only 302 shares. On September 3, 2020 the total volume was 1 share, not a one lot of a hundred shares, but 1 share. Despite the miniscule volume, the spread between the bid and ask has been very small, and it has traded very close to its, net indicative (asset) value. Thus, for those trading relatively small lots, the lack of volume may not be a major problem.

The diversification provided by ETNs reduces much of the risk associated with individual securities. However, systemic risk still exists and appears to be growing. Clearly, the COVID-19 situation is the key factor for any economic forecast and, to a large extent, the outlook for the securities markets. In addition to election uncertainty there is now vaccine uncertainty.

Vaccines undergo double-blind phase-three trials. Double-blind means that neither the patient nor the medical personnel who interact with the patients know if any particular dose is the actual vaccine or a placebo. However, the companies running the trials can share the aggregate unblinded results with others. At times drug trials are unblinded early if either there is reason to believe either the drug is obviously very dangerous. Normally, vaccine trials are not subject to early unblinded analysis, since the regulators would never approve a vaccine that did not finish the phase-three trials. Thus, it would be a waste of money to have early unblinded statistical analysis.

Clearly, the COVID-19 situation is unique and it might make sense for a vaccine trial to have early unblinded analysis. Ironically, the recent surge in the number of COVID-19 cases could facilitate early successful determination of whether a vaccine is efficacious. Those familiar with statistics know that the number of observations is the key to determining statistical significance.

The double-blind phase-three trials involve selecting various locations and then enrolling people into the trials. At one extreme, if no one in a sample ever became infected, either those with the vaccine or placebo, that sample would be worthless in determining statistical significance. However, if the those conducting a drug trial were “lucky” enough to have selected an area when the was a tremendous outbreak, it would be possible to determine statistical significance early. For example, if a 1,000 people were enrolled in one leg of the trial and 500 of the tested positive, statistical analysis could easily and quickly prove one way or another, whether the vaccine was effective. If only 10 of a thousand tested positive, no such statistical analysis would be determinative. The consequence of this “vaccine uncertainty” is that at any time there could be extremely bullish or extremely bearish news regarding potential vaccines for COVID-19.

The outlook for the economy depends to a large extent on whether or not a new relief/stimulus is enacted. There is also the “fiscal cliff” possibility that the government could shut down on September 30, 2020. As discussed in The Economy May Fall Off The $600 Cliff, the supplemental unemployment benefits, that expired on July 31, 2020, had been keeping retail sales actually above pre-COVID-19 levels. In that regard, The New York Times included:

…“The lack of emergency unemployment benefits in August is going to have, I think, devastating effects both for families and the economy as a whole,” said Ernie Tedeschi, an economist at Evercore who has tracked the effects of the supplemental benefits throughout the recovery. The lapse of the extra $600 could cut monthly disposable income in August by around $70 billion compared with a full month of benefit payments, based on one Goldman Sachs analysis…

…Most economists still project additional government support as the most likely outcome, but they are increasingly concerned that the money will not be forthcoming.

“Markets appear to be taking a view that major fiscal legislation is inevitable,” Goldman Sachs analysts wrote in a note published on Aug. 14. “While we still think a fiscal package is much more likely than not, we believe there is a roughly one in four chance that Congress fails to pass further aid until after the election.”…

I had been looking for sluggish growth after the initial bounce back from the lifting of stay-at-home orders and the reinstating of the restrictions due to the surge in cases, in some states that opened too soon. However, there is a possibility that inaction by Congress could put the economy into a steep plunge. That could impact many sectors. Even with another new relief/stimulus package, the relative failure of America to control COVID-19 may reduce the travel and hospitality industries for an extended period. The diminishment of America’s standing in the world may also impact economic activity. To the extent that some business development companies may have investments in airlines or related businesses, that could negatively impact them. Thus, diversification is important.

Table II: BDCY Components and Contributions to the Dividend

Name

Ticker symbol

% Weight

Price

ex-div

dividend total

frequency

contribution

Golub Capital BDC Inc

GBDC

4.68

13.16

9/4/2020

0.29

q

0.0156

FS KKR Capital Corp

FSK

4.63

16.07

9/15/2020

0.6

q

0.0261

Ares Capital Corp

ARCC

4.54

14.79

9/14/2020

0.4

q

0.0185

Owl Rock Capital Corporation Com

ORCC

4.52

12.34

9/29/2020

0.41

q

0.0227

Hercules Technology Growth Capital Inc

HTGC

4.52

11.21

8/7/2020

0.32

q

0.0195

New Mountain Finance Corp

NMFC

4.48

10.11

9/15/2020

0.3

q

0.0200

Sixth Street Specialty Lending

TSLX

4.43

17.41

9/14/2020

0.41

q

0.0157

Main Street Capital Corp

MAIN

4.41

30.61

11/24/2020

0.615

m

0.0134

Prospect Capital Corp

PSEC

4.29

5.08

10/29/2020

0.18

m

0.0229

Apollo Investment Corp

AINV

3.95

9.18

9/18/2020

0.36

q

0.0234

Solar Capital Ltd

SLRC

3.63

16.85

9/16/2020

0.41

q

0.0133

BlackRock TCP Capital Corp

TCPC

3.36

9.9

9/15/2020

0.3

m

0.0154

Goldman Sachs BDC Closed End Fund

GSBD

3.14

15.83

9/29/2020

0.45

q

0.0135

Tcg Bdc Inc

CGBD

3.08

8.95

9/29/2020

0.37

q

0.0192

Oaktree Specialty Lending Corporation

OCSL

2.94

5.01

9/14/2020

0.105

q

0.0093

Bain Capital Specialty Finance Inc

BCSF

2.69

10.86

9/29/2020

0.34

q

0.0127

Crescent Capital Bdc Inc.

CCAP

2.38

12.35

9/29/2020

0.41

q

0.0119

PennantPark Floating Rate Capital Ltd

PFLT

2.37

8.56

8/18/2020

0.285

m

0.0119

Newtek Business Services Corp

NEWT

2.36

19

9/18/2020

1.14

q

0.0214

Triplepoint Venture Growth BDC Corp

TPVG

2.35

11.78

8/28/2020

0.36

q

0.0108

Gladstone Investment Corp

GAIN

2

9.39

9/22/2020

0.21

m

0.0067

Stellus Capital Investment Corp

SCM

1.96

8.21

9/14/2020

0.5

m

0.0180

PennantPark Investment Corp

PNNT

1.9

3.47

6/16/2020

0.12

q

0.0099

Fidus Investment Corp

FDUS

1.88

10.47

9/10/2020

0.3

q

0.0081

Capital Southwest Corp

CSWC

1.83

14.98

9/14/2020

0.51

q

0.0094

BlackRock Kelso Capital Corp

BKCC

1.83

2.86

8/17/2020

0.1

q

0.0097

Barings Bdc Inc

BBDC

1.7

8.35

9/8/2020

0.16

q

0.0049

Oxford Square Capital Corp

OXSQ

1.7

2.62

9/15/2020

0.105

m

0.0103

Gladstone Capital Corp

GLAD

1.66

7.64

9/22/2020

0.195

m

0.0064

WhiteHorse Finance Inc

WHF

1.61

10.56

9/18/2020

0.355

q

0.0082

Monroe Capital Corp

MRCC

1.58

7.01

6/12/2020

0.25

q

0.0085

Horizon Technology Finance Corp

HRZN

1.53

12.02

11/17/2020

0.3

m

0.0058

Solar Senior Capital Ltd

SUNS

1.38

13.19

8/19/2020

0.3

m

0.0047

First Eagle Alternative Cap Bdc Inc THL Credit Inc

TCRD FCRD

1.27

3.15

9/14/2020

0.1

q

0.0061

Fifth Street Senior Floating Rate Corp

OCSI

1.11

6.7

9/14/2020

0.125

q

0.0031

MVC Capital Inc

MVC

1.09

8.2

7/23/2020

0.17

q

0.0034

Sutter Rock Capital Corp

SSSS

0.62

13.9

8/10/2020

0.15

q

0.0010

Saratoga Investment Corp

SAR

0.6

17.96

7/24/2020

0.4

q

0.0020

Table III: BDCS Components and Contributions to the Dividend

Name

Ticker symbol

% Weight

Price

ex-div

dividend total

frequency

contribution

Ares Capital Corp

ARCC

9.81

14.79

9/14/2020

0.4

q

0.0380

Owl Rock Capital Corporation Com

ORCC

9.6

12.34

9/29/2020

0.41

q

0.0457

Fs Kkr Capital Corp

FSK

8.64

16.07

9/15/2020

0.6

q

0.0462

Main Street Capital Corp

MAIN

8

30.61

11/24/2020

0.615

m

0.0230

Golub Capital BDC Inc

GBDC

6.93

13.16

9/4/2020

0.29

q

0.0219

Prospect Capital Corp

PSEC

6.09

5.08

10/29/2020

0.18

m

0.0309

Hercules Technology Growth Capital Inc

HTGC

5.08

11.21

8/7/2020

0.32

q

0.0208

TPG Specialty Lending Inc

TSLX

4.86

17.41

9/14/2020

0.41

q

0.0164

New Mountain Finance Corp

NMFC

3.78

10.11

9/15/2020

0.3

q

0.0161

Solar Capital Ltd

SLRC

2.87

16.85

9/16/2020

0.41

q

0.0100

Fifth Street Finance Corp

OCSL

2.63

5.01

9/14/2020

0.105

q

0.0079

Apollo Investment Corp

AINV

2.5

9.18

9/18/2020

0.36

q

0.0140

TCP Capital Corp

TCPC

2.41

9.9

9/15/2020

0.3

m

0.0105

Goldman Sachs Bdc Closed End Fund

GSBD

2.34

15.83

9/29/2020

0.45

q

0.0095

Tcg Bdc Inc

CGBD

2.13

8.95

9/29/2020

0.37

q

0.0126

Bain Capital Specialty Finance Inc

BCSF

1.84

10.86

9/29/2020

0.34

q

0.0083

Newtek Business Services Corp

NEWT

1.61

19

9/18/2020

1.14

q

0.0138

Triplepoint Venture Growth BDC Corp

TPVG

1.53

11.78

8/28/2020

0.36

q

0.0067

Crescent Capital Bdc Inc.

CCAP

1.51

12.35

9/29/2020

0.41

q

0.0072

PennantPark Floating Rate Capital Ltd

PFLT

1.4

8.56

8/18/2020

0.285

m

0.0067

Gladstone Investment Corp

GAIN

1.31

9.39

9/22/2020

0.21

m

0.0042

Barings Bdc Inc

BBDC

1.2

8.35

9/8/2020

0.16

q

0.0033

Capital Southwest Corp

CSWC

1.07

14.98

9/14/2020

0.51

q

0.0052

Fidus Investment Corp

FDUS

1.07

10.47

9/10/2020

0.3

q

0.0044

PennantPark Investment Corp

PNNT

0.96

3.47

6/16/2020

0.12

q

0.0048

Gladstone Capital Corp

GLAD

0.95

7.64

9/22/2020

0.195

m

0.0035

BlackRock Kelso Capital Corp

BKCC

0.85

2.86

8/17/2020

0.1

q

0.0043

Horizon Technology Finance Corp

HRZN

0.84

12.02

11/17/2020

0.3

m

0.0030

Solar Senior Capital Ltd

SUNS

0.79

13.19

8/19/2020

0.3

m

0.0026

Sutter Rock Capital Corp

SSSS

0.78

13.9

8/10/2020

0.15

q

0.0012

Saratoga Investment Corp

SAR

0.69

17.96

7/24/2020

0.4

q

0.0022

WhiteHorse Finance Inc

WHF

0.67

10.56

9/18/2020

0.355

q

0.0032

Fifth Street Senior Floating Rate Corp

OCSI

0.64

6.7

9/14/2020

0.125

q

0.0017

Stellus Capital Investment Corp

SCM

0.64

8.21

9/14/2020

0.5

m

0.0056

Monroe Capital Corp

MRCC

0.61

7.01

6/12/2020

0.25

q

0.0031

Oxford Square Capital Corp

OXSQ

0.52

2.62

9/15/2020

0.105

m

0.0030

MVC Capital Inc

MVC

0.51

8.2

7/23/2020

0.17

q

0.0015

First Eagle Alternative Cap Bdc Inc

FCRD

0.35

3.15

9/14/2020

0.1

q

0.0016

Table IV: BDCX Components and Contributions to the Dividend

Name

Ticker symbol

% Weight

Price

ex-div

dividend total

frequency

contribution

Ares Capital Corp

ARCC

9.81

14.79

9/14/2020

0.4

q

0.1002

Owl Rock Capital Corporation Com

ORCC

9.6

12.34

9/29/2020

0.41

q

0.1205

Fs Kkr Capital Corp

FSK

8.64

16.07

9/15/2020

0.6

q

0.1218

Main Street Capital Corp

MAIN

8

30.61

11/24/2020

0.615

m

0.0607

Golub Capital BDC Inc

GBDC

6.93

13.16

9/4/2020

0.29

q

0.0577

Prospect Capital Corp

PSEC

6.09

5.08

10/29/2020

0.18

m

0.0815

Hercules Technology Growth Capital Inc

HTGC

5.08

11.21

8/7/2020

0.32

q

0.0548

TPG Specialty Lending Inc

TSLX

4.86

17.41

9/14/2020

0.41

q

0.0432

New Mountain Finance Corp

NMFC

3.78

10.11

9/15/2020

0.3

q

0.0424

Solar Capital Ltd

SLRC

2.87

16.85

9/16/2020

0.41

q

0.0264

Fifth Street Finance Corp

OCSL

2.63

5.01

9/14/2020

0.105

q

0.0208

Apollo Investment Corp

AINV

2.5

9.18

9/18/2020

0.36

q

0.0370

TCP Capital Corp

TCPC

2.41

9.9

9/15/2020

0.3

m

0.0276

Goldman Sachs Bdc Closed End Fund

GSBD

2.34

15.83

9/29/2020

0.45

q

0.0251

Tcg Bdc Inc

CGBD

2.13

8.95

9/29/2020

0.37

q

0.0333

Bain Capital Specialty Finance Inc

BCSF

1.84

10.86

9/29/2020

0.34

q

0.0218

Newtek Business Services Corp

NEWT

1.61

19

9/18/2020

1.14

q

0.0365

Triplepoint Venture Growth BDC Corp

TPVG

1.53

11.78

8/28/2020

0.36

q

0.0177

Crescent Capital Bdc Inc.

CCAP

1.51

12.35

9/29/2020

0.41

q

0.0189

PennantPark Floating Rate Capital Ltd

PFLT

1.4

8.56

8/18/2020

0.285

m

0.0176

Gladstone Investment Corp

GAIN

1.31

9.39

9/22/2020

0.21

m

0.0111

Barings Bdc Inc

BBDC

1.2

8.35

9/8/2020

0.16

q

0.0087

Capital Southwest Corp

CSWC

1.07

14.98

9/14/2020

0.51

q

0.0138

Fidus Investment Corp

FDUS

1.07

10.47

9/10/2020

0.3

q

0.0116

PennantPark Investment Corp

PNNT

0.96

3.47

6/16/2020

0.12

q

0.0125

Gladstone Capital Corp

GLAD

0.95

7.64

9/22/2020

0.195

m

0.0092

BlackRock Kelso Capital Corp

BKCC

0.85

2.86

8/17/2020

0.1

q

0.0112

Horizon Technology Finance Corp

HRZN

0.84

12.02

11/17/2020

0.3

m

0.0079

Solar Senior Capital Ltd

SUNS

0.79

13.19

8/19/2020

0.3

m

0.0068

Sutter Rock Capital Corp

SSSS

0.78

13.9

8/10/2020

0.15

q

0.0032

Saratoga Investment Corp

SAR

0.69

17.96

7/24/2020

0.4

q

0.0058

WhiteHorse Finance Inc

WHF

0.67

10.56

9/18/2020

0.355

q

0.0085

Fifth Street Senior Floating Rate Corp

OCSI

0.64

6.7

9/14/2020

0.125

q

0.0045

Stellus Capital Investment Corp

SCM

0.64

8.21

9/14/2020

0.5

m

0.0147

Monroe Capital Corp

MRCC

0.61

7.01

6/12/2020

0.25

q

0.0082

Oxford Square Capital Corp

OXSQ

0.52

2.62

9/15/2020

0.105

m

0.0079

MVC Capital Inc

MVC

0.51

8.2

7/23/2020

0.17

q

0.0040

First Eagle Alternative Cap Bdc Inc

FCRD

0.35

3.15

9/14/2020

0.1

q

0.0042


Disclosure: I am/we are long BDCY, BDCX, BDCS, REM< REML, MVRL. 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.



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