Putnam BDC Income ETF

PBDC

Market cap $216M

Putnam BDC Income ETF (PBDC) offers a 10.1% dividend yield, providing high income and diversified exposure to top-quality BDCs. PBDC's active management avoids underperforming BDCs, outperforming the broader BDC ETF (BIZD) with a 67.5% total return since inception. The ETF mitigates risks from dividend cuts and portfolio deterioration, making it suitable for income-focused investors seeking stability.

Putnam BDC Income ETF is an actively-managed BDC ETF. It currently yields 10.1%, significantly more than most equities, bonds, and other asset classes. Although Federal Reserve cuts are an important headwind for the fund, I'm overall bullish, and dividends have fared quite well from previous cuts too.

Steven Bavaria, from Inside the Income Factory, discusses credit assets like high-yield bonds, senior loans, and BDCs for stable, high-yield income, favoring closed-end funds for their resilience and discounts. Expense ratios for BDC ETFs like PBDC appear high due to accounting rules, but actual fund expenses are low—professional management adds only about 0.4%.

PBDC remains the best ETF for BDC exposure, but its heavy tilt toward large-cap, first-lien BDCs is increasingly problematic. Rising competition and likely interest rate cuts threaten earnings and dividends for PBDC's top holdings like ARCC, OBDC, and BXSL. LMM and equity-oriented BDCs, such as TRIN and FDUS, offer better risk-reward and dividend coverage in the current environment.

PBDC, the only actively managed BDC ETF, continues to outperform its passive peer BIZD across multiple timeframes, justifying its higher expense ratio. Active management allows PBDC to be more selective, targeting smaller, less liquid BDCs and avoiding weaker names, enhancing returns over passive alternatives. Despite sector risks and macroeconomic headwinds, BDCs remain attractive due to strong cash flows from elevated interest rates and selective security choice.

Putnam BDC Income ETF offers a 9.4% yield and diversified exposure to top U.S. business development companies, mitigating individual BDC risks. The ETF's portfolio includes high-quality BDCs like Blue Owl, Ares Capital, and Blackstone Secured Lending, supporting both income and NAV growth. Compared to the larger VanEck BDC Income ETF, PBDC provides similar diversification with strong performance since inception and growing assets under management.

PBDC offers diversified BDC exposure, reducing binary credit risk versus single-name picks, and benefits from active management in uncertain rate environments. Current high yields (~10%) are attractive, but expect yields to normalize to 7-8% and NAV to stagnate if rates fall or defaults rise. Expense ratio concerns are mitigated by pass-through accounting; liquidity and NAV premium/discounts are stable, supporting ease of trading.

The investment provides a dividend yield of nearly 10%, while offering diversified exposure to BDCs. The fund has outperformed its passive counterpart BIZD since the end of 2022 through active management. The fund maintains a limited number of holdings which creates higher risk, but offers better potential returns.

I'm consolidating my BDC holdings into PBDC due to rising risks from prolonged high interest rates and increased competition for quality deals. PBDC offers strong total returns, a nearly 10% dividend yield, and greater income stability compared to individual BDCs, making it attractive for income investors. The ETF's top holdings prioritize first lien senior secured debt, quality underwriting, and portfolio diversity, reducing risk of non-accruals and sector concentration.

Fear-driven volatility creates investment opportunities, with Business Development Corporations performing well in the current economic environment. Initiating a buy rating on Putnam BDC Income ETF due to its strong performance, high yield, and strategic focus on higher-grade, liquid companies. PBDC has outperformed peers, offering a 60.89% return since September 2022, with top holdings like Blue Owl, Blackstone, Ares Capital, and Golub Capital.