A new ETF is being launched as a pure play for high-yield, high-risk business development companies.
The launch flies in the face of warnings by FINRA and also conventional wisdom. The Market Vectors BDC Income ETF (BIZD) is designed to replicate the price and yield performance of the Market Vectors BDC index.
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It is expected to yield 7.56% with an expense ratio of .4%. Business development companies have traditionally thrown off high yields, which are particularly attractive in an historically low interest rate environment.
The ETF’s prospectus acknowledges the high risk nature of the fund, noting that business development companies (BDCs) typically invest in early stage companies that have little liquidity in the marketplace.
BIZD’s rules-based index is designed to track the overall performance of publically traded BDCs.
The new ETF claims to be the only pure play on the index.
BDCs lend to and invest in below investment-grade companies. Their leverage is tightly restricted and is currently limited to a 1:1 ratio.
The new ETF is said to offer exposure to a broad range
of companies that have varying lending practices.