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Fifth Street Finance Corp. Message Board

  • fred2011_2012 fred2011_2012 Apr 21, 2013 10:54 AM Flag

    Educated comments re: Barrons 4 high rated picks on BDC's

    Any1 have comparisons as to the Barron's picks versus FSC. Interesting that they quoted Tannenbaum but did not pick FSC as 1 of their selections.

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    • The four they recommended come from Wells Fargo lowest risk tier. (See page 2 of the article publishes April 20.) I agree with picking the BDCs with the lowest risk; however, you have to consider other factors -- such as the current price relative to NAV and dividend coverage. (Example: Is ARCC really that "safe" when it's trading at 1.2x NAV?)

      That said, you also have to consider that analyst's may be biased. About two weeks ago, Wells downgraded some BDCs and mentioned that they were acquiring ARCC. (They have a BDC ETF.) Within a day or two, we saw ARCC do an offering -- and yes, Wells was one of the bookrunners of that offering.

      I have not done any comparisons among the four that Wells recommends to FSC. FSC does have floating-rate loans, and most are secured loans. I beleive they mentioned Tannenbaum in reference to their floating-rate loans.

      Are these really safer than junk bonds? That depends on which bonds you are talking about. Relative to somehting like PHK, I'd say BDCs are safer. But BDCs are not nearly as safe as something like PHYDX, which invests in B-rated or better (but less than BBB). The later also focuses on 2-6 year duration bonds.

      • 3 Replies to waynesonnen
      • watching the gyration of bdcl, well's 2x bdc etf, i certainly wonder not so much about the bdc's as the indexs that track them. bdcl looks 'attractive' with a 13%+ yield, but it moves fairly wildly. 'junk-bonds' have been about the best performing asset class for the past 2years i think.

        tho i still believe that some diversification is absolutely justified. bdc's tend to be more than simply packaged debt. reit's continue to gain and recover from 08/09 and have stabilized mostly. however, disparities between reit-types should make choices warranted.

        notsure its so much the current 'risk' in bdc's as much as price that has run up fairly aggressively relative to other classes.

        as you say, wayne .... price may be the determinant.

        Sentiment: Hold

      • Could it be that they are in the process of buying /building a position in FSC ?

        Sentiment: Strong Buy

      • tulsadevlin Apr 21, 2013 5:15 PM Flag

        Thanks Wayne, good analysis.
        I don' t know which is safer,but there is always risk in high income bonds(junk)and BDCs.
        I own them both,and am willing to hold for a protracted period.
        A key point you made a while back is the PRICE one pays per share.

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