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VanEck Vectors BDC Income ETF: A Sustainable 8.5% Yield With A Big Tradeoff

Published Tue, 24 Jul 2018 14:29:08 -0400 on Seeking Alpha

Main Thesis In this article, we will review the VanEck Vectors BDC Income ETF (BIZD). With a composition of high-yield equities, this ETF can indeed offer prospective investors strong equity income. With a portfolio of common stocks that offer floating rate loans to private middle market companies, BIZD has realized the benefits of rising short-term rates. Notwithstanding this and the fact that the ETF has the distributions well covered, I cannot recommend holding BIZD as a core equity income holding because high fees have effectively eroded capital growth for investors. As an alternative asset class, this BDC fund can best be used as a supplement to deliver yield in the right circumstances.
Assessment of distribution
(Source: Original Image - Data from Yahoo Finance)
For an unlevered fund made up of a portfolio of equities, a trailing 12-month yield of 8.48% is very impressive. Furthermore, you can see from the chart above that the ETF has delivered on its value proposition. Since inception, the quarterly distribution has been trending upwards as short-term rates have risen. Of course, as it is made up of high-yield equities, not only should total return be considered, but is the distribution sustainable?
Fundamental Analysis
(Source: Fund Factsheet)
The BDC business model: Provide floating rate loans to private middle market companies. Despite the fact that these loans are typically secured with property, the average credit rating for the borrowers are... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
ARES CAPITAL 18.16   9.3 1.95 1.60 8.82