“One reason the structure has limited leverage is because you’re investing in illiquid assets,” KBW’s Ward added.
Investors can gain access to the broad BDC market through an ETF. For instance, the Market Vectors BDC Income ETF (NYSEArca: BIZD), which tracks U.S.-listed BDCs, shows a distribution yield of 6.77%. The fund has a heavier allocation toward micro-cap stocks at 49.3%, along with 24.9% in small-caps and 26.8% in mid-caps. [Making Sense of Acquired Fund Fees in BDC ETFs]
Additionally, the E-TRACS Wells Fargo Business Development Index ETN (NYSEArca: BDCS) has 12-month yield of 6.99%. Unlike ETFs, an underwriting bank backs the exchange traded note, and if the bank goes under, investors could lose their principle. The UBS E-TRACS 2x Wells Fargo Business Development Company Index ETN (NYSEArca: BDCL) provides leveraged exposure to BDCs. While the leveraged aspect exposes investors to greater risk, the ETF generated a robust 13.72% 12-month yield.
For more information on BDCs, visit our business development companies category.