While 2010 was a great year for BDC investors, many are looking ahead to next year wondering if the upward trends will continue. Since the beginning of the year, the PowerShares Listed Private Equity ETF (AMEX:PSP) has climbed more than 21%, easily outpacing the 12.5% gain of the SPDR S&P 500 ETF (AMEX:SPY), but many question whether BDCs will continue to be a value investor favorite going forward.
While some BDCs have come out of the credit crisis stronger than ever, others still have a long way to go before they regain the trust of retail investors. One company that managed itself well through the credit crisis was Ares Capital (NASDAQ:ARCC). The company acquired the assets of Allied Capital below book value in April 2010, maintained its dividend of 35 cents per share for the past seven quarters and returned shareholders almost 25% per year on average since 2008 (with dividends reinvested).
On the other end of the spectrum, you have American Capital (NASDAQ:ACAS). The company has seen its stock drop from almost $50 per share in 2007 to below $1 in March 2009. The stock has since recovered to about $8 per share since the company restructured its debt, but the dividend remains suspended. Investors who were brave enough to buy ACAS at the beginning of 2010 have seen their investment grow by more than 200%, but for those that bought and held the stock since the beginning of 2008 have had an average annual return of -29% (with dividends reinvested).
And in between the brightest and darkest stars of the BDC sector you find Apollo Investment Corp. (NASDAQ:AINV). The company slashed its dividend by 50% in 2009, but has since raised the payout a modest amount. And the stock has matched the average annual return of the S&P 500 since 2008, with a return of 2.53% (with dividends reinvested). Like American Capital, Apollo Investment Corp. favored equity investments over debt investments and current is dealing with the bankruptcy hearings for its largest investment, Grand Prix Holdings (the Innkeepers USA Trust investment from 2007).
For those bullish on the sector, ETFs are an option here. The PowerShares Listed Private Equity ETF holds all three BDCs mentioned above, totaling almost 10% of the portfolio. For a full list of holdings, visit the PSP Holdings page.
For a list of ETFs holding ACAS, AINV or ARCC, visit the following links:
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