BDCs are also seen as sensitive to higher interest rates, but that situation may be overstated as well. Since the debt is typically senior secured and set to float with interest rate benchmarks, there is diminished rate risk. When the Fed raises rates, BDC loan interest rates pegged to the London Interbank Offered Rate, or LIBOR, will also rise.
BIZD’s recent surge in popularity comes in spite of the ETF’s big expense ratio. The ETF’s net expense ratio is 9.2%, according to issuer data, well above the ETF industry average.
“The fund, which tracks publicly traded business development companies, known as BDCs, is by far the world’s most expensive ETF, with an eye-popping expense ratio of 920 basis points. To understand how high this is, consider that the next closest fund charges 362 basis points, according to data compiled by Bloomberg,” reports Bloomberg.
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.
Competitors to BIZD include the UBS E-TRACS Wells Fargo Business Development Index ETN (NYSEArca: BDCS), but that product is structured as an exchange traded note (ETN). ETNs introduce counterparty risk, which can be a reason to favor ETFs where such risk is not an issue.