🏦 BDC ETFs
🏦 BDC ETFs
Business Development Companies (BDCs) lend to middle-market businesses — companies too small for investment banks but too large for traditional bank loans. BDC ETFs provide access to this private credit market with yields that can exceed 10%.
Why BDCs matter
- Extreme yields: 9-12%+ dividend yields
- Floating rate loans: Most BDC loans are floating rate
- Private credit exposure: Access typically reserved for institutions
- Economic sensitivity: Performance reflects small/mid-cap business health
How BDCs work
BDCs must distribute at least 90% of taxable income (like REITs). This creates high yields but little cushion if loans go bad.
ETFs compared
| ETF | Expense | Yield | Best For |
|---|---|---|---|
| BIZD | 13.33%* | ~10-11% | Broad BDC exposure |
| PBDC | 10%+* | ~9-10% | Active management |
*High expense ratios reflect acquired fund fees — underlying BDCs have their own expenses. ETF management fee is ~0.40%.
Top BIZD holdings
| BDC | Weight |
|---|---|
| Ares Capital (ARCC) | ~19% |
| Blue Owl Capital (OBDC) | ~11% |
| Blackstone Secured (BXSL) | ~10% |
The BDC risk profile
This is not a bond substitute: BDCs have equity-like volatility. The 10%+ yield comes with 10%+ potential drawdowns.
What can go wrong
| Risk | Impact |
|---|---|
| Credit losses | NAV drops, dividends cut |
| Rate reversal | Falling rates = lower income |
| Recession | Middle-market defaults spike |
| NAV erosion | Discounts widen in stress |
When to consider BDCs
✅ May work when:
- Economy stable or expanding
- Interest rates elevated
- You tolerate equity-like volatility
- You understand credit cycles
❌ Risky when:
- Recession approaching
- Rates falling rapidly
- You need principal stability
Quick reference
| Goal | ETF |
|---|---|
| Broad BDC exposure | BIZD |
| Active management | PBDC |
| Lower-risk alternative | BKLN, SRLN (senior loans) |
BDCs offer 10%+ yields, but you’re taking real credit risk. They behave like small-cap financials in stress. Size positions appropriately.
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