BDC ETFs Weaken as Russell Joins S&P in Giving Companies the Boot
March 4th, 2014 at 3:40pm by Max Chen
High-yielding business development company exchange traded funds dipped Tuesday as Russell Indexes announced it will join S&P Dow Jones Indices in booting BDCs from its indices.
The Market Vectors BDC Income ETF (NYSEArca: BIZD), which tracks U.S.-listed BDCs, was down 0.4% Tuesday. Additionally, BDC-related exchange traded notes, E-TRACS Wells Fargo Business Development Index ETN (NYSEArca: BDCS) and UBS E-TRACS 2x Wells Fargo Business Development Company Index ETN (NYSEArca: BDCL), declined 0.3% and 0.5%, respectively.
Russell revealed that it will remove BDCs from its indices during a planned June reconstitution if the Securities and Exchange Commission does not change the group’s fee-reporting standard by May 15, reports Brendan Conway for Barron’s.
The exchange traded products dropped last week after the S&P announced it was booting BDCs from its indices due to accounting and reporting requirements and expenses. [S&P Index Changes Pressure BDC ETFs]
Business development companies are required to disclose so-called acquired fund fees and expenses, which are a type of business expense and not considered “fees” in the way fund investors are familiar with. [Making Sense of Acquired Fund Fees in BDC ETFs]
BDCs are high-dividend-paying firms that focus on lending senior secured loans to midsized companies. These companies act like banks to other companies, but the BDCs are not structured as banks since they pay out at least 90% of income to investors through dividends. BDC-related ETFs are good sources of high dividend yields. BIZD has a 5.41% 12-month yield, BDCS has a 7.09% yield and BDCL has a 14.78% yield. [Generate Yields with BDC ETFs]
Along with BDC-specific funds, Russell 2000 ETFs will also be affected by the change. BDCs make up about 8% of the Russell 2000 index, the underlying benchmark of the iShares Russell 2000 ETF (NYSEArca: IWM).
Market Vectors BDC Income ETF
For more information on BDCs, visit our business development companies category.