The Takeaway
BDCs are investment vehicles that provide financing to the US middle-market sector, typically privately held or smaller public firms primarily through debt instruments, spanning senior secured loans to subordinated and mezzanine instruments. BDCs have historically offered some of the highest yields among liquid asset classes, often exceeding those of investment-grade bonds, high-yield corporate debt, and broad equity markets.
Applying a credit-focused, dividend-weighting index methodology further enhances the aggregate yield, with the weighted trailing 12-month yield increasing to 14.39% from 12.93% under this approach.
While the Morningstar BDC Index and the Morningstar PitchBook Listed BDC Index show comparable long-term returns, the latter index achieves a higher dividend yield and stronger alignment with credit investments. This makes it useful for investors prioritizing income generation and credit exposure, while the former index supports diversified benchmarking.
This whitepaper covers the analysis on the listed business development companies, exploring the segment's historical context, structural nuances, regulatory environment, and investment dynamics. Additionally, it introduces a proprietary Morningstar PitchBook Listed BDC Index, which was developed to track the performance of the largest listed BDCs. The index provides insights into this evolving alternative credit space, highlighting opportunities and risks for investors seeking diversified income exposure through BDCs.
To better capture the differentiation arising from varying degrees of credit exposure and the resulting income potential, the Morningstar PitchBook Listed BDC Index has been developed to track publicly listed BDCs with a focus on those more heavily invested in credit. This has been achieved by leveraging detailed portfolio holdings and investment classifications from PitchBook data to apply a purity score framework. Complementing this, the Morningstar BDC Index serves as a benchmark for the broader BDC market, providing a comprehensive view of overall segment performance.
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