BDCs: Better Don’t Choose?

SUMMARY

• Business development companies (BDC) funds feature 10%+ annual fees
• Investors seem to be willing to accept these for similarly high dividend yields
• However, these funds underperform the S&P 500 significantly

INTRODUCTION

The most expensive investment funds tend to be ones focused on private asset classes like private equity as there are fewer regulatory disclosure requirements, but there are also some excessively expensive ETFs and mutual funds that trade public securities. We recently came across the VanEck BDC Income ETF (BIZD) that charges 10.92% per annum.?The ETF issuer explains that the management fee is a mere 0.40% and that the other 10.52% can be attributed to acquired fund fees and expenses.

BIZD is managing more than $600 million of assets, so investors seem to be comfortable with paying such high fees, which is unusual given the usually fierce focus on paying the lowest fees possible.

In this research article, we will explore business development companies (BDC) funds.

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