As many try to position their investment portfolios for a rising interest rate environment ahead, income-minded investors may look to business development companies and related exchange traded funds.
For example, the VanEck Vectors BDC Income ETF (NYSEArca: BIZD) tries to reflect the performance of the MVIS US Business Development Companies Index, which includes publicly traded BDCs.
While most investors have been focused on dividend stocks, BDCs have been quietly producing high yields and may even offer more attractive valuations than traditional dividend payers.
BDCs provide attractive income opportunities for income seekers, with BIZD showing an 8.32% 30-day SEC yield. Business development companies generate robust yields since they are required to pay out 90% of income in the form of dividends, a structure similar to what income investors find with real estate investment trusts, or REITs.
The BDC segment is comprised of companies that essentially fund small $5 million to $100 million businesses. Since the financial crisis, regulators have clamped down on traditional lenders, making it harder for many businesses to access public capital.