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BIZD: Attractive 9% Yield, But Widening Credit Spreads A Risk

Published Sat, 07 Sep 2019 10:11:28 -0400 on Seeking Alpha

The VanEck Vectors BDC Income ETF (BIZD) invests in a wide array of business development companies in the United States. The fund offers a huge dividend yield of 9% and the underlying BDCs trade at a weighted average P/E ratio of 8.5X.
As you would expect, all of that reward comes with a fair amount of risk. BDCs often borrow money to invest in speculative-grade credit in order to maximize yields and investor interest. As a whole, I like the ETF but investors who want to minimize their risk exposure may want to look at the individual names in order to toss out the bad apples.
What is a Business Development Company
In case you have not already heard, a business development company is a firm that invests primarily in the credit of small- and medium-sized businesses. The BDC is often operated by a big asset manager such as Ares (ARES) and is traded as a separate entity/fund on the NYSE.
To a certain degree, a BDC is very similar to a REIT, or more specifically, a mortgage REIT. They have no corporate income tax so long as they distribute 90% of their taxable income in the form of dividends to investors. They are typically levered to a debt to equity of 1:1 and invest across the capital structure of small- to medium-sized companies. Some BDCs even have equity exposure to account for the fact that BDCs cannot provision for loan losses.
Put simply, buying an ETF like BIZD or investing in the individual holdings is essentially "playing banker" to the smaller companies of... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
BLACKROCK KELSO CAPITAL 5.25   0.0 -0.12 0.56 13.61
PENNANTPARK INVESTMENT 6.32   21.8 0.29 0.72 11.32
PROSPECT CAPITAL 6.71   16.8 0.40 0.72 10.76
APOLLO INVESTMENT 16.78   14.2 1.18 1.80 10.73
FIDUS INVESTMENT 14.84   8.8 1.69 1.56 10.53
TCP CAPITAL 13.75   29.3 0.47 1.44 10.48
OAKTREE SPECIALTY LENDING 4.90   0.0 -1.39 0.50 10.02
PENNANTPARK FLOATING RATE CAPITAL 11.68   30.0 0.39 1.14 9.81
HERCULES TECH GROWTH CAP 13.26   10.0 1.32 1.28 9.55
GOLDMAN SACHS BDC 20.29   22.5 0.90 1.80 8.88
GLADSTONE CAPITAL 9.50   63.3 0.15 0.84 8.84
ARES CAPITAL 19.19   10.5 1.82 1.60 8.39
NEWTEK BUSINESS SERVICES 22.91   0.0 0.00 2.32 8.09
SOLAR CAPITAL 20.87   12.4 1.69 1.64 7.93
GOLUB CAPITAL BDC 18.55   15.7 1.18 1.28 6.89
GLADSTONE INVESTMENT 12.34   7.4 1.67 0.82 6.73
MAIN STREET CAPITAL 43.18   16.8 2.57 2.46 5.69


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