💰Private Credit ETFs: Your Gateway to Alternative Income

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Imagine this: While many investors pursue traditional dividend stocks and treasury bonds, a $2 trillion lending market is quietly offering attractive returns with less volatility. Welcome to private credit! With ETFs, you don't need to be a billionaire to participate. If you're frustrated by low bond yields and are looking for a balance between income and growth, private credit ETFs could be the solution you've been seeking. Let's explore this exciting opportunity that is making Wall Street's exclusive domain accessible to everyone.

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Why Private Credit ETFs?

Private credit is the "behind-the-scenes" side of lending. Following the 2008 financial crisis, banks have become more selective, leading to loans that are privately negotiated between borrowers and non-bank lenders. Unlike corporate bonds traded on exchanges, these are custom loans made directly to companies by private funds.

The private credit market, now larger than some traditional markets, is thriving due to floating interest rates that rise with Federal Reserve hikes, stronger protections for lenders, and a focus on the senior tier of a company's debt. This means lenders are first in line for repayment if a company faces financial difficulties.

Now let's discuss Why Should Retail Investors Care About Private Credit ETFs?

• 💰The Income Advantage: Private credit ETFs typically yield around 10%, making them more attractive than the modest returns of traditional government bonds. It's no wonder investors are taking notice.

• 🔀The Diversification Play: While often categorised as fixed-income, this area has a low correlation with rate-sensitive instruments. In simple terms, when interest rates change, traditional bonds can be impacted, but private credit can often perform well.

• ☔The Floating Rate Shield: A notable advantage that traditional bond investors often overlook is that most private credit instruments feature floating interest rates. When the Federal Reserve raises rates and bonds struggle, private credit can see increased interest payments. It's like having an umbrella that grows larger when it rains.

Private credit ETFs are relatively few in number, but we are seeing an increasing number of players emerge. This nascent but rapidly expanding corner of the ETF world is breaking down barriers that once kept private credit inaccessible to retail investors.

🏆Top Private Credit ETFs

Now that we've covered the importance of private credit ETFs, let's examine the key players in this space:

1. Virtus Private Credit Strategy ETF (VPC)

Inception: 2019-02-07

Expense Ratio: 0.75%

Provider: Virtus

Dividend Yield: 12.01% (as of last data point)

Distribution Frequency: Quarterly

$VPC ( ▼ 0.86% ) was launched on February 7, 2019, by Virtus Investment Partners. Since the fund's inception, the average annual return has been 7.27%. The fund provides diversified exposure to companies that lend to small and medium-sized businesses – the exact companies that traditional banks often overlook.

2. BondBloxx Private Credit CLO ETF (PCMM)

Inception: 2024-12-02

Expense Ratio: 0.68%

Provider: BondBloxx

Dividend Yield: 3.58% (as of last data point)

Distribution Frequency: Monthly

PCMM invests in at least 80% of its net assets in private credit collateralised loan obligations (CLOs), in which the majority of each such CLO consists of a pool of loans to private companies.

CLOs might sound complicated, but think of them as loan bundles – like mortgage-backed securities, but for business loans. In our article of JAAA, we provided a detailed introduction to this product.

3. SPDR SSGA IG Public & Private Credit ETF (PRIV)

Inception: 2025-02-26

Expense Ratio: 0.70%

Provider: SSGA

Dividend Yield: 1.47% (as of last data point)

Distribution Frequency: Monthly

PRIV launched in February 2025 with much fanfare and a partnership with Apollo Global Management. The fund promised to hold up to 35% in private credit instruments – something revolutionary for a retail ETF. PRIV represents an important step toward the true democratisation of private credit investing. Keep an eye on this one as it evolves.

4. VanEck BDC Income ETF (BIZD)

Inception: 2013-02-11

Expense Ratio: 0.42%

Provider: VanEck

Dividend Yield: 10.65% (as of last data point)

Distribution Frequency: Quarterly

$BIZD ( ▼ 1.52% ) provides broad exposure to publicly traded BDCs via the MVIS U.S. Business Development Companies Index, which provides investors with indirect private equity and credit exposure. BIZD has consistently generated attractive yields across multiple interest rate cycles. With a high yield, it's a favourite among income-focused investors.

5. WisdomTree Private Credit and Alternative Income Fund (HYIN)

Inception: 2021-05-06

Expense Ratio: 0.50%

Provider: WisdomTree

Dividend Yield: 12.25% (as of last data point)

Distribution Frequency: Monthly

$HYIN ( ▼ 0.17% ) offers a diverse approach to alternative credit, including private credit, which goes beyond traditional investment-grade and junk bonds. The fund has shown resilience in a volatile interest rate environment, with a yield exceeding 10% that highlights its income potential.

🚀The Private Credit ETF Revolution

Private credit ETFs are a groundbreaking way to make alternative investing accessible. They offer retail investors attractive yields and diversification beyond what traditional bond funds can provide.

Private credit ETFs present unique factors to consider. They typically have higher expense ratios (including acquired Fund Fees and Expenses) than standard bond ETFs due to access to specialised, less liquid markets. The underlying investments can be complex, with some using leverage, which increases both returns and risks.

Additionally, credit risk is a concern, as loans are often made to smaller, non-investment-grade companies, leading to potential defaults. However, many of these investments are secured by company assets and have a priority in repayment, offering some downside protection.

The space is rapidly evolving, introducing new entrants and innovative methods to access a historically exclusive market. Whether you're a yield-seeking retiree or exploring alternatives, private credit ETFs are worth researching. Just ensure you size your position appropriately, as they are tactical allocations rather than core holdings.

We hope you enjoyed exploring private credit ETFs this weekend! The alternative investment space is evolving quickly, offering sophisticated strategies to everyday investors through ETFs. Stay connected with ETF UNO for more insights as we help you navigate the ETF universe with confidence.

DISCLAIMER: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research and consider consulting with a financial advisor before making investment decisions.