With much of today’s market chatter being tied to the Russell Index re-constitution, ETF issuer Market Vectors recently brought to our attention a nuance that is tied to this year’s re-balance that will affect a certain business segment.
BDC’s, or “Business Development Companies” have not been well regarded it seems by index companies in terms of feeling the need to include the names in their indexes, as we saw S&P Dow Jones decide to remove BDC stocks from their indexes earlier this year and now Russell is doing the same beginning today by giving them the boot.
This said, BDC names are still accessible in their pure form instead of via broad based indexes in ETF and ETN form. BIZD (Market Vectors BDC Income ETF, Expense Ratio 0.40%) debuted in February of 2013 and is still likely an unknown amongst most institutional portfolio managers, but that fund has managed to raise more than $43 million in assets thus far which is a respectable showing given this niche BDC market not being on everyone’s radar, and understandably so.
BIZD follows a proprietary index known as the Market Vectors U.S. Business Development Companies Index, and the ETF currently owns thirty listed names in the segment, with top holdings appearing as the following ARCC (15.79%), ACAS (10.63%), PSEC (9.01%), FSC (5.17%), and AINV (5.14%).
We have seen yield oriented investors expressing interest in the BDC space in the past, whether on a standalone equity basis if not giving some consideration to a BDC ETF such as BIZD and the yield currently of this ETF is 6.43%.
BDCs are classified more generally under the “Financials Equity” category, and BIZD is actually the newest entry in the space, but the only one in ETF form.
Two BDC specific ETNs also exist, having been launched by ETRACS back in 2011 and they are BDCL (ETRACS 2X Leveraged Long Wells Fargo Business Development Company Index ETN, Expense Ratio 0.85%) and BDCS (ETRACS Linked to the Wells Fargo Business Development Company Index 0.85%). BDCL has attracted more than $244 million in assets under management since inception while the unlevered BDCS has only a fraction of that in $66 million in AUM.
It is interesting to us that in the category, the leveraged product is the largest at the moment in terms of AUM, and all of these funds will likely continue to grow in size as it appears there is a decent amount of investment interest in this space.
Market Vectors BDC Income ETF
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