This ETF Puts an 11.59% Private Credit Yield in Your Brokerage Account

Private credit has become a popular alternative to traditional publicly traded bonds, but there’s an obvious problem for individual investors: accessing it. Private loans don’t trade on an exchange like stocks or Treasury bonds. They can be illiquid, difficult to value, and unavailable to many ordinary investors. Private credit funds can also come with high investment minimums, lengthy lockups, limited redemption opportunities, and accreditation requirements.

Yet there’s a publicly traded corner of the market that does something very similar. Business development companies, or BDCs, lend money to private businesses, particularly middle-market companies that may have fewer financing options through traditional banks. The VanEck BDC Income ETF (BIZD) packages a diversified portfolio of these companies into an ETF currently yielding 11.59% on a trailing 12-month basis.

Why BDCs Can Be Difficult to Analyze

BDCs are publicly traded investment companies that generally provide financing to small and midsize private businesses. Their portfolios can include senior secured loans, subordinated debt, preferred securities, and occasionally equity stakes. A large portion of BDC lending is floating rate. That can support income when short-term interest rates are elevated, although higher borrowing costs can simultaneously put more pressure on the companies receiving those loans.

Analyzing an individual BDC isn’t as simple as looking at its dividend yield. You need to understand the credit quality of its underlying borrowers, non-accrual rates, leverage, loan-to-value ratios, portfolio diversification, interest coverage, and whether loans sit at the senior or subordinated level of the capital structure.

Net asset value also matters. Investors frequently compare a BDC’s stock price with its NAV to determine whether they’re paying a premium or discount for the underlying portfolio. Then there’s net investment income and dividend coverage. A high distribution isn’t particularly useful if the BDC isn’t generating sufficient recurring investment income to support it.

For investors who don’t want to perform that analysis across dozens of lenders, an ETF can make the asset class considerably easier to own. Instead of worrying about which BDC is best, just buy the entire basket and let the market sort itself out.

How BIZD Packages Private Credit

BIZD tracks an index of publicly traded BDCs using market-cap weighting. I like that approach for this particular asset class because it naturally allocates more money toward the larger BDCs rather than giving the same weight to every company regardless of size. That doesn’t eliminate credit or management risk, but it means smaller and potentially more volatile BDCs don’t automatically receive oversized portfolio allocations. The result is diversified exposure to private lending through a single exchange-traded security.

However, one number can initially make the ETF look prohibitively expensive: its reported expense ratio. BIZD’s headline expense ratio is approximately 9.69%. But roughly 9.27% of that comes from acquired fund fees and expenses, or AFFE. VanEck’s own management fee is 0.40%, with approximately another 0.02% classified as other expenses.

AFFE requires some explanation. BIZD owns BDCs, and accounting rules require the operating expenses of those underlying investment companies to be reflected in the ETF’s reported expense ratio. Those costs are economically real. But buying the BDC stocks yourself wouldn’t magically make their operating expenses disappear. They simply wouldn’t appear as an ETF expense ratio on your brokerage screen in the same way.

I therefore wouldn’t interpret BIZD’s 9.69% headline figure the same way I would interpret a conventional stock ETF charging 9.69% directly. I’d focus separately on VanEck’s 0.40% management fee and the underlying economics and expenses of the BDC portfolio.

The trade-off for that approximately 11.59% yield is meaningful credit risk. BIZD’s underlying companies lend to businesses that can be smaller, more leveraged, and more economically sensitive than typical investment-grade bond issuers. If defaults and non-accruals rise, BDC earnings, NAVs, and dividends can all come under pressure.

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