OXLC: The Persistent Premium Puzzle

It seems like regardless of what the Oxford Lane Capital Corp (OXLC) does, its high premium remains a constant. The chart below is the way we estimate the fund’s daily discount/premium (alongside 3 other CLO funds). The reason we have to go through this trouble is because the fund does not provide daily NAVs which leaves investors (outside of our service, that is) flying blind.

Normally, funds are rewarded with high premiums when they post stellar historic returns or have unusually high distribution rates. The fund’s 5-year total return is basically flat which is beyond disappointing given how well other asset classes have done over the last 5 years so that can’t be it.

The fund does have a high-teen distribution rate but for investors who have held the fund prior to the March drawdown – the yield on their cost basis is in the single digits given the fund’s massive distribution cut this year.

That leaves behavioral reasons – or the strategy of hope – a kind of Stockholm syndrome that makes investors cling to OXLC in the hope of getting their original investment back (the fund returned -40% year-on-year). That doesn’t sound like a solid investment strategy to me.

Thanks for reading.

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