ACRE - Inefficiency of alternative investments

ACRE - Inefficiency of alternative investments

Large cap highly liquid stocks might be highly efficient, I doubt it but I don't care enough about them to argue against it. But in the alternative space inefficiency is ripe, and that's a good thing.

I recently posted about KREF being mispriced against its peers and looking at a monthly chart it seems as if KREF is starting to lag behind.

https://preview.redd.it/2kwbjh7oaqz...bp&s=39fb5b213e49e8ac51eedaee8eb7b515be18bedb

If indeed KREF is overbought it would make sense that its upside is limited in comparison to its discounted peers.

Another obvious mispricing was/is ACRE, ACRE reported negative earnings, missed estimations, its dividend is still not cover by income earned, 10% of the portfolio is not performing, its NAV declined and yet the ~40% discount It was trading at was simply overstated - and indeed ACRE popped up ~12% after reporting bad earnings.

If you ask SeekingAlpha analysts they might say that the market is pleasantly surprised that the dividend was not cut again, but if that is the case then the Mr. Market has simply not been listening to management's comments during their earning calls in which they repeatedly iterated that they feel comfortable with the current distribution.

What else is Mr. Market getting wrong?

CGBD was punished for missing earning estimates, ignoring the nuance that they could have reported much stronger earnings but chose to prioritize the portfolio's long tern health instead and drove their non accruing loans down from 1.8% all the way to 0.6%.

MFIC is being punished for a merger that was well communicated in advance. Sure, paying shareholders a fat special dividend as a thank you for approving the mergers hurst the NAV but investors shouldn't be complaining given that its money in their pockets. Yes, the mergers were dilutive but the dividend is unchanged and once all the merged capital is fully invested and earning income it could even see a raise.

BBDC had technical issues and couldn't answer questions on their call, is that why they are being sold off? or is it as a result of non accruals ticking up to the low low rate of 0.5%?

TSLX had a horrible quarter, earnings slipped to the point that the dividend is no longer covered by them, income generation declined although not enough to fall below the distribution, NAV declined pushing the premium higher, non accruals increased, its riskier second lien positions are posting loses and yet the price remains unchanged from before the earnings release.

And as usual the market is sleeping on FDUS, the gift that keeps on giving with income coverage of ~149%, the highest in my portfolio. While other BDCs are having a hard time keeping up as lower rates hurt their income FDUS increased its NII.

In other words the alternative investment space is ripe with opportunity, and Mr. Market has a tendency of being wrong.

I personally prefer to spend my time asking myself which diversified investment fund is offering the best discount rather then spending my time trying desperately to convince myself that my NVDA holding is not horribly overpriced.

submitted by /u/ejqt8pom
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