Thursday, February 17, 2011

Prospect Capital (PSEC) to join SmallCap 600

I was intrigued by this headline as it is always exciting when a member of the BDC Index joins a major index. The S&P SmallCap 600 Index (as taken from their website):

The S&P SmallCap 600 covers approximately 3% of the domestic equities market. Measuring the small cap segment of the market that is typically renowned for poor trading liquidity and financial instability, the index is designed to be an efficient portfolio of companies that meet specific inclusion criteria to ensure that they are investable and financially viable.

The purpose of this index is to take a sample of the Small Cap (market capitalization of between $250mm and $1.2b) market and provide investors exposure to the universe of these stocks. Some of the qualifications (aside from market capitalization) include liquidity (at least 250,000 share volume), domicile (US), public float (at least 50%) and financial viability. The inclusion into this index should be fairly beneficial to current shareholders of PSEC (or if you were fortunate enough to buy a day before S&P published the announcement). Below is an extremely crude look at other stocks and some technical analysis on them. This is NOT A RECOMMENDATION TO BUY OR SELL.

Some sample recent additions to the S&P SmallCap 600 and their performance:

As you can see, not every addition produces a winner, but it is safe to say for the next few days PSEC's stock price should trend upward with the majority of the volume trades happening this week. If we ignore ATNI (which had a number of other issues at the time it was added to the index), the average performance boost from A-3 to A+2 (this upcoming Tuesday) is 2.42%, this means the expected close is 12.08 for PSEC.

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