PBDC Vs. BIZD: Which BDC ETF Is Best For Income Investors And Retirees?

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BDCs offer investors strong, growing dividend yields. Performance has been good since inception, strong since the Fed started raising rates.PBDC and BIZD both focus on BDCs, and have similar ...

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Performance has been good since inception, strong since the Fed started raising rates.PBDC and BIZD both focus on BDCs, and have similar ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684275-pbdc-versus-bizd-which-bdc-etf-is-best-for-income-investors-and-retirees\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>PBDC Vs. 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BIZD: Which BDC ETF Is Best For Income Investors And Retirees?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-18 01:26 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4684275-pbdc-versus-bizd-which-bdc-etf-is-best-for-income-investors-and-retirees><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>BDCs offer investors strong, growing dividend yields. Performance has been good since inception, strong since the Fed started raising rates.PBDC and BIZD both focus on BDCs, and have similar ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684275-pbdc-versus-bizd-which-bdc-etf-is-best-for-income-investors-and-retirees\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FT_SY_ES","symbol_name":"SP500指数","start_time":0,"source_url":"https://seekingalpha.com/article/4684275-pbdc-versus-bizd-which-bdc-etf-is-best-for-income-investors-and-retirees","article_id":"2428321962","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1284113910/image_1284113910.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2428321962","pubTimestamp":1713374766,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"BDCs offer investors strong, growing dividend yields. 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Performance has been good since inception, strong since the Fed started raising rates.PBDC and BIZD both focus on BDCs, and have similar characteristics to these.Both are similar to each other, and both are buys, but do have some important differences that investors need to consider.   PM ImagesBDCs are one of the highest-yielding investments right now, with most offering investors double-digit yields with solid growth. The largest ETF in this space is the VanEck BDC Income ETF (NYSEARCA:BIZD), the Putnam BDC Income ETF (NYSEARCA:PBDC) is a newer, smaller alternative. Due to the strong income offered by these ETFs and reader interest, I thought to write an article comparing these two ETFs. Both funds have broadly similar strategies, characteristics and performance. Both funds have high credit risk, low interest rate risk, and broadly similar volatility and drawdowns to equity. Both have strong yields, although BIZD's 11.0% dividend yield is a bit higher than PBDC's 9.7%. Both have similar performance track-records, somewhat underperforming equities long-term, but outperforming since early 2022 when rates started to rise. PBDC's performance has been stronger, but the fund is quite young, with inception in late 2022. PBDC is a relatively small fund, with only $73M in AUM. Liquidity seems adequate, however. Overall, both funds are similar investments, and buys. They seem balanced, with BIZD offering a slightly higher yield, but PBDC slightly outperforming. In similar situations I might lean toward PBDC on total return grounds, but the fund is quite young, so slight outperformance means little. Strategies and Holdings - PBDC Personal Winner Both funds invest in business development companies, or BDCs. BDCs are financial institutions that provide funds, generally loans, to small- and medium-sized enterprises. BDCs are generally diversified, although less so than the average mega-cap bank, and smaller too. BDCs are generally leveraged, same as banks. BDC earnings are roughly equivalent to the net income produced by their loan portfolios. As an example, we have Ares Capital (ARES), one of the largest holdings in both funds. Ares provides billions in financing to hundreds of companies, generally in the form of senior loans, but also with bonds, preferred shares, and equity.   AresAres's earnings and dividends are dependent on the size of their portfolio, their underlying yield, and default rates, amongst other factors. BDC yields are generally high, dividend growth generally moderate, with many exceptions and caveats. BIZD is a BDC index fund, investing in most BDCs in the market. As these are a small sub-asset class, the fund only invests in 26 different securities, leading to a concentrated portfolio with little diversification. The largest holdings are as follows.   BIZDPBDC is an actively-managed BDC fund, which chooses which BDCs to invest in and their weights. Returns are partly dependent on the specific investment decisions taken by the fund's management team, their execution and timing. Ideally, the fund would focus on the best-performing, highest-yielding BDCs, boosting returns and dividends. In the worst-case scenario, the fund does the opposite, leading to losses and dividend cuts. The fund currently invests in 20 different holdings. The largest of these are as follows.   PBDCAs can be seen above, the fund is currently overweight several of the largest BDCs in the market. On the flipside, the fund is underweight several smaller ones. I wouldn't put too much emphasis on current weights, as these seem to fluctuate month to month and quarter to quarter. As an example, the fund used to be significantly underweight Ares Capital (NYSE: ARES), the largest BDC in the market, and that is not true now. In my opinion, active investment strategies should work particularly well for BDCs, as these securities are more amenable to analysis and forecasts than most. As an example, energy industry performance is strongly dependent on commodity prices, which is incredibly volatile and tough to forecast. Everyone was blindsided by the pandemic, most by the Ukraine war. Tech industry performance is strongly dependent on growth, which is difficult to forecast, sentiment and valuation, which are sometimes irrational, and almost impossible to forecast. By contrast, BDC returns are mostly dependent on easily measurable metrics like the underlying yield of their portfolios, leverage ratios, and default rates. Sentiment and valuation obviously play a role, but these companies are not Tesla (TSLA) or Nvidia (NVDA). Due to the above, I prefer PBDC's active strategy over BIZD's more passive approach. Although I do believe that this preference is based on clear, objective facts of BDCs as an asset class, it is mostly a preference, and some investors might disagree with it. Risk Comparison - BIZD Slight Winner BDCs generally have high credit risk, due to focusing on smaller, riskier issuers with non-investment grade credit ratings. Specific data is hard to come by, but investors should expect credit quality to be equivalent to B-BB rated bonds for both BIZD and PBDC. Leverage further boosts risk and volatility. Expect significant, above-average losses for both during recessions, as was the case for BIZD in early 2020, the onset of the coronavirus pandemic.   Data by YChartsPBDC is a young fund, with inception in late 2022, so we can't really gauge its performance during a downturn. Still, I'm quite confident that it would post significant losses during these, same as BIZD. BDCs generally focus on variable rate loans, and so have below-average interest rate risk. Expect both funds to outperform bonds during periods of rising rates, as has been the case for BIZD since early 2022. It has outperformed the S&P 500 too, although I'm not sure that this will necessarily be the case next time rates go up. Sentiment played a role here, as did valuations. Data by YChartsPBDC has significantly outperformed since inception in late 2022, broadly in-line with expectations. Timing played a role, with the fund being created around the time when markets bottomed and rates topped. BIZD's performance is a bit more reflective of the expected performance of either fund during periods of rising rates, in my opinion at least. Data by YChartsOverall, both funds are somewhat risky, volatile investments, roughly comparable to equities. BIZD's drawdowns and volatility are both almost identical to those of the S&P 500, in-line with expectations. Data by YChartsPBDC's volatility is comparable to that of the S&P 500 too. Drawdowns are technically much lower, but the fund's performance track-record is too short for this particular metric to be all that informative. Data by YChartsPBDC's active management exposes investors to active risk: returns are somewhat dependent on the fund's management team and its investment decisions, boosting risk and potential losses. In my opinion, although these risks are not all that significant, they are impactful enough for PBDC to be a slightly riskier investment than BIZD. Risks are still roughly comparable, however. Dividend Yield Comparison - BIZD Winner BDCs almost always generate a lot of income, from their high-yield loan portfolios. Both BIZD and PBDC sport strong dividend yields, with BIZD yielding 11.0%, PBDC yielding 9.6%. Other dividend metrics look strong too, including their SEC yields, and their latest quarterly payment annualized. Dividend yields are strong on an absolute basis, and higher than that of most bonds, bond sub-asset classes, and stocks.   Seeking Alpha and Fund Filings - Table by AuthorSome other niche income-producing asset classes offer comparable yields to these funds, including most mREITs, some CLOs, and some CEFs. Even then, the yields on these funds are generally competitive with these securities. Data by YChartsBoth funds tend to see positive dividend growth too. BIZD's dividends have grown at a 3.4% CAGR the past ten years, quite good considering the fund's double-digit starting yield. Growth has been much stronger since early 2022, as Federal Reserve hikes increased the yield on BDC portfolios/loans.   Seeking AlphaPBDC's dividend growth track-record is quite short, so not terribly informative. Dividends have technically declined since inception, but that seems to have been due to an abnormally large 4Q2023 dividend payment. Dividends have increased YTD, but ETF dividends are somewhat volatile, and said growth could have simply been due to volatility.   Seeking AlphaOn a more negative note, the Federal Reserve will probably start to cut rates in the coming months, which should put negative pressure on BDC loan yields, and hence earnings and dividends. Both funds should see dividend cuts from these rate cuts, although much will depend on their magnitude and timing. At the same time, BDC asset growth should lead to higher earnings, somewhat reducing the impact from lower Fed rates. On a more positive note, BDC yields seem high enough to remain competitive even if the Fed were to cut rates. Each fund yields somewhere between 9.0-11.0%, and yields seem likely to remain in the 7.0-9.0% range even after the Fed cuts rates. Dividend yields seem quite competitive, especially so considering the potential for long-term growth, and the fact that most bonds and bond sub-asset classes should see lower yields from lower rates as well. Both funds offer investors strong, competitive yields, a significant benefit for their respective investors. BIZD seems to yield around 1.5% more than PBDC, an important advantage of the former over the latter. Performance Track-Record - PBDC Winner BIZD's performance track-record is longer, so let's start by looking at BIZD. BIZD's overall performance track-record seems reasonable enough, with some caveats. Returns are generally higher than that of most bonds and bond sub-asset classes, including high-yield corporate bonds. Returns have been lower than those of the S&P 500 since inception, but performance has markedly improved since the Federal Reserve hiked rates. Returns moving forward are strongly dependent on future Federal Reserve policy. Under current guidance, I believe that equity-like long-term returns are possible. Rate cuts might lead to some positive short-term price movements but long-term dividend cuts, and vice versa.   Seeking Alpha - Table by AuthorPBDC's performance track-record is technically much stronger, with the fund outperforming most bonds, bond sub-asset classes, and the S&P 500 since inception. This is mostly due to timing, with the fund being created in late 2022, a very favorable time for BDCs. Data by YChartsPBDC has also outperformed BIZD since inception, somewhat consistently so. Data by YChartsIn my opinion, outperformance was due to investment alpha, with the fund focusing on better-performing BDCs over BIZD's index approach. Due to PBDC's short performance track-record, I am not certain that past outperformance is indicative of an overall successful investment strategy or future success. I'm inclined to believe that, but the evidence is far from conclusive. Another issue with PBDC's performance is that I'm not entirely sure why it has outperformed besides a general sense of investment alpha. For the Saba Closed-End Funds ETF (CEFS), I know that outperformance has been due to a sizable short treasury position and Saba's activist campaigns. I believe that the activist campaigns will continue to succeed, and so believe CEFS will continue to outperform. For PBDC the situation is a bit unclear, so I'm less confident that outperformance will continue. In any case, both funds offer investors reasonable performance track-records. PBDC has outperformed BIZD since inception, a benefit of the former over the latter. Other Considerations As a final point, PBDC is a relatively small fund, with only $73M in AUM, compared to $1.03B for BIZD. PBDC does seem to have reasonable liquidity, with 27,678 volume, and a median bid/ask spread of 0.12%. For reference, BIZD has 545,235 volume, and a bid/ask spread of 0.06%. Overall, the fact that PBDC is smaller than BIZD puts it at some risk of closure, and makes the fund a bit less liquid than average. These are definitely negatives, but seem small to me. Conclusion  PBDC and BIZD are both BDC ETFs. Both offer investors strong dividends and reasonably good performance track records, and both are buys.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428321962"}