E-TRACS 2x Leveraged Long Wells Fargo BDC ETN (BDCL) is a mouthful but worth every bite, and my second recommendation in the BDC world.
Keep in mind that it’s a leveraged business development exchange-traded note, not an exchange-traded fund that holds all the underlying stocks of those publicly traded BDCs. Rather, it is a debt note secured by the United Bank of Switzerland (UBS), and is tied to the Wells Fargo Business Development Company Index (WFBDC) the only index to be made up completely of BDCs. This index is based off of 32 BDC holdings, which the BDCL ETN leverages by 2X.
This exchange-traded note is only as strong as the financials of UBS, a global enterprise with a market cap of $79 billion. But UBS is one of the most conservative investment banks in the world. Like BDCs themselves, the dividend for BDCL will be adjusted each quarter to reflect the performance of the underlying index, but with the fundamentals playing to the favor of the sector, the yield looks reliable.
BDCL was down a good chunk in Q4 2011, but I stayed with it because I thought the fundamentals were better than what the stock was showing. Certainly the BDCs got thrown out with the banks, and very few people have confidence in banks with one scandal after the other in recent years. Since then, however, it’s been prime time for BDCs — and BDCL’s chart speaks for itself: the price is up 63.7% since the beginning of 2012.
As you can see, it pays not to buy into media hysteria. BDCs are financials, but they’re not banks. I made the right choice, and it’s paid off for me and for Cash Machine subscribers. Even with a 60.2% total return on our position, BDCL is currently trading not far from my buy price, so as a newcomer, it’s a great time to get in on the hefty 14.5% dividend yield.
I think BDCL can make its way toward $35 in the next 18-24 months, given its lofty yield that leaves plenty of room to keep moving higher.