ETF Trends publisher Tom Lydon discussed the VanEck Vectors BDC Income ETF (BIZD) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
Investors looking for a high-yield, equity income position may consider business development companies exposure to complement a traditional income-oriented portfolio. BDCs are companies that fund small- to mid-sized private companies, which are usually rated below investment grade or not rated at all.
Since the financial crisis, regulators have clamped down on traditional lenders, making it harder for many small businesses to access public capital. Many of these private smaller businesses turned to loans from BDCs as an alternative.
BDCs should do relatively well in the kind of environment ahead where many expect an increase in interest rates. Since BDC loans are mostly floating rate, the companies could earn more as rates rise.
These loans, in general, reset interest payments based on three-month LIBOR interest rate floors. Many BDCs’ loan portfolios may now benefit from the floating rate feature by adjusting their yields upwards should interest rates further increase.