BGX: Long/Short Loan Fund That Is Actually Just Long

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Thesis

Blackstone Long-Short Credit Income Fund (NYSE:BGX) is simply a fixed income closed extremity fund. As per its literature:

The Fund's superior finance nonsubjective is to supply existent income, pinch a secondary nonsubjective to activity superior appreciation. Under normal marketplace conditions, nan Fund will put astatine slightest 70% of its Managed Assets successful secured loans and astatine slightest 80% of its Managed Assets successful in installments investments. The Fund is simply a diversified, closed-end guidance finance institution and whitethorn employment a long-short strategy. The Fund's short positions whitethorn full up to 30% of nett assets

The money yet invests chiefly successful floating complaint loans, pinch a very precocious leverage level of 40%. What is absorbing astir this money is its long/short mandate. In a recessionary situation for illustration today, this type of money is expected to thrive via its expertise to make income via beardown credits (long only positions), and besides beryllium capable to return advantage of nan weakness successful immoderate names shorting them. That is nan beauty of a long/short strategy - successful nan normal people of business a manger tin place which credits are weak, and this instruction allows a head to profit from that view.

Well BGX hasn't. In effect, BGX is only agelong arsenic of nan latest fact-sheet and furthermore, its 1-year capacity is astatine nan bottommost of nan cohort erstwhile compared to different floating complaint indebtedness funds. Disappointment present is an understatement. The very point that should differentiate BGX (i.e. nan expertise to short credits) is not there, and nan fund's capacity is lacking.

BGX is presently a long-only fund, having nary short positions:

Long/Short Positions (Fund Fact Sheet)

Today's recessionary situation should beryllium 1 wherever costs for illustration BGX could thrive by making money some connected nan agelong broadside via beardown credits and nan short broadside via dislocations for companies pinch free rate travel issues.

Analytics

• AUM: $0.14 billion.
• Sharpe Ratio: 0.09 (3Y).
• Std. Deviation: 18 (3Y).
• Yield: 10%
• Premium/Discount to NAV: -13%
• Z-Stat: -1
• Leverage Ratio: 40%

Holdings

The money holds a portfolio mostly composed of floating complaint loans:

Asset Allocation (Fund Fact Sheet)

We tin spot nan CEF pursuing nan classical secured indebtedness / precocious output enslaved composition, pinch conscionable a sliver of different plus classes layered in.

The money does not return excessive consequence via its CCC bucket:

Ratings (Fund Fact Sheet)

We tin spot nan conveyance is overweight 'B' names, and has a unsmooth 10% allocation to CCC credits.

Performance

The money has been trailing its peers successful nan floating complaint indebtedness abstraction successful nan past year:

Total Return (Seeking Alpha)

The aforesaid is applicable connected a 5-year lookback period:

Total Return (Seeking Alpha)

We would person expected overmuch much here. When you person a CEF that has a instruction to short credits, and you are entering a recessionary environment, that instruction should beryllium your winning card. As a fund, you are capable to return advantage of credits which will weaken fixed nan macro situation, while astatine nan aforesaid clip make income/carry via stronger names which would beryllium agelong only holdings. One could opportunity today's situation tin beryllium perceived arsenic an perfect 1 - money tin beryllium made easy some connected nan agelong and short side. BGX has grounded to return advantage of that.

Premium/Discount to NAV

The money has been trading successful a reasonably constrictive discount scope successful nan past year:

Data by YCharts

We tin spot nan fluctuations successful nan discount to NAV are successful a very tight scope of -15% to -11% here. The money does not person a precocious beta to marketplace risk-on / risk-off moves owed to its mediocre performance. The marketplace participants are telling america that nan money will yet underperform, irrespective of risk-on/risk-off conditions. This is not a conveyance that tin beryllium picked up astatine a ample discount to NAV and traded for a important tightening.

Conclusion

BGX is simply a fixed income CEF. The money is overweight floating complaint loans, which constitute complete 70% of nan portfolio. The money has a classical build, pinch nan remainder of nan vulnerability chiefly falling successful nan precocious output enslaved bucket. The CEF nevertheless runs a precocious leverage ratio of 40%. What is expected to differentiate BGX is its long/short mandate, nan money being capable to short anemic credits. Surprisingly, BGX has nary short positions arsenic of nan past truth sheet. A recessionary situation for illustration today's, should beryllium an perfect clip for costs for illustration BGX to make outsized results. BGX hasn't. In fact, erstwhile compared to different floating complaint indebtedness funds, BGX is astatine nan bottommost of nan cohort from a capacity standpoint. We do not spot immoderate entreaty successful BGX present - it does not return advantage of its short mandate, nor is it capable to make a robust capacity from its agelong positions. Retail investors are overmuch amended set-up to put superior successful this plus people via vehicles specified arsenic VVR, AIF aliases EAD.

With a financial services rate and derivatives trading background, Binary Tree Analytics intends to supply transparency and analytics successful respect to superior markets instruments and trades._____________________________http://www.BinaryTreeAnalytics.com