The High-Yield BDC Sector Is Ready To Rally In 2018

As mentioned in "Tax-Loss Harvesting For The High-Yield BDC Sector In 2017?", I was anticipating a pullback in general business development company ("BDC") pricing over the last few weeks potentially related to tax-loss selling. As shown below, UBS ETRACS Business Development Company ETN (NYSEARCA: BDCS) has been trending down since early May with additional declines in the last few weeks. However, as mentioned in "Index Funds: Not The Way To Invest In This High-Yield Sector", BDCS and BDCL have been underperforming the average BDC due to tracking fees and allocations.

The average BDC price has declined by almost 4% over the last few weeks. However, as predicted in the article linked above, there is a wide range of performance from OCSL down over 15% (due to being overvalued relative to its ST target) and TCAP up almost 2% (due to being undervalued relative to its ST target). There is a good chance that we will see additional selling pressure for BDCs that are:
Overpriced compared to short-term target prices Poor performance year-to-date 2017 Significantly down from recent highs Currently not near recent lows
Previous Tax-Loss Selling: The following chart was from an old article discussing tax-loss selling for 2014 and 2015. The average BDC was down around 12% during the first part of December 2014, but there was a wide range of price performance for each company.

Potential Rally In 2018? There are many reason for a... Read more