BOSTON (AP) â¿¿ Shares of business development companies fell on Tuesday after Stifel Nicolaus analysts downgraded six of the stocks, saying they have become more selective about investment prospects after sharp price gains this year for the business lenders' stocks.
Analysts Greg Mason, Troy Ward and J. Jeffrey Hopson cut ratings of four companies to "Sell" from "Hold," including BlackRock Kelso Capital Corp., Gladstone Capital Corp., MCG Capital and Prospect Capital Corp. Shares of Compass Diversified Holdings and PennantPark Floating Rate Capital Ltd. were cut to "Hold" from "Buy."
They said stocks of business development companies have returned an average of nearly 30 percent this year, including dividend payments. That's far ahead of the 18.4 percent average total return for the Standard & Poor's 500 index stocks, and better than an index of financial industry stocks.
"We believe investors should become much more selective in the deployment of new capital into the BDCs," the analysts wrote in a note to clients.
They attributed the gains in part to strong recent demand from investors buying high-yield corporate bonds and investing in bank loans. That trend has helped give business development companies greater access to capital for lending to small- and mid-sized companies that want to expand.
Mason, Ward and Hopson said they remain "very comfortable with the fundamentals" of business development companies, and expect that credit quality "should continue to remain strong." They said their ratings cuts reflect a revised view, "one of balance and selectivity" due to increases in stock prices among business development companies.
Shares of MCG Capital fell 57 cents, or 10.8 percent, to $4.70 in afternoon trading. BlackRock Kelso lost 69 cents, or 6.7 percent, to $9.60. Gladstone Capital dropped 33 cents, or 3.6 percent, to $8.75. Compass Diversified Holdings fell 58 cents, or 3.8 percent, to $14.61. Prospect Capital lost 41 cents, or 3.3 percent, to $11.81, and PennantPark Floating Rate Capital fell 14 cents to $12.68.