Forget Private Credit: This Canadian BDC ETF Yields 10% and Pays Monthly Income

Wealthsimple, Canada’s most popular zero-commission brokerage, is making a hard push into private credit. They're advertising a 9% target yield net of fees through a partnership with Sagar, hoping to attract yield-hungry investors. But I’m skeptical.

First off, there’s the steep entry bar: a $50,000 account requirement and a $10,000 minimum investment. Then come the fees. Wealthsimple charges a 1.25% management fee on top of their standard robo-advisor fee, plus a 15% performance fee above a 5% hurdle. That’s a lot of hands in your pocket.

And even if you accept all that, this isn’t something you can sell at will. It has a quarterly redemption window. Redemptions are capped at 5% of the fund’s value, require at least 60 days’ notice before the end of the quarter, and you’ll be waiting another 30 days after that to actually get your money. That is, if they don’t free redemption entirely during as downturn.

Now compare that to public market alternatives like business development companies (BDCs), which are essentially listed private lenders and can be traded like any other stock or ETF. While Canadian investors don’t have access to individual BDCs on the TSX, there is one ETF that offers direct exposure: the Accelerate Diversified Credit Income Fund (INCM). Here’s what’s under the hood.

What are BDCs?

In the U.S., BDCs are a special type of pass-through investment vehicle. Much like Real Estate Investment Trusts (REITs) or Master Limited Partnerships (MLPs), they don’t pay corporate income tax as long as they meet certain conditions.

But while REITs primarily own property and MLPs largely hold energy infrastructure, BDCs specialize in something different: private lending.

BDCs exist to provide debt and, in some cases, equity financing to small- and mid-sized private companies, commonly called “middle market” businesses.

These are typically firms with $10 million to $250 million in annual revenues that are too large for typical small-business loans but too small or unseasoned to issue their own bonds or go public.

The lending BDCs do is usually in the form of private loans, often senior secured, meaning they’re backed by the borrower’s assets and have priority in a default. These loans usually come with floating interest rates and high coupons.

Some BDCs also negotiate sweeteners in the form of warrants, preferred shares, or convertible notes, giving them equity upside if the borrower performs well.

Like REITs, BDCs are required by law to distribute at least 90% of their taxable income to shareholders. This structure translates into very high yields, often well above what you’d find in traditional bond funds or dividend-paying stocks.

But it’s not a one-size-fits-all space. Some BDCs are internally managed (meaning their expenses are lower and incentives are better aligned with shareholders), while others use external managers who charge layered fees.

Bigger isn’t always better here. In fact, many of the best-performing BDCs are smaller and trade consistently above net asset value (NAV), a sign that the market values their loan book and management expertise.

How INCM works

INCM is a straightforward ETF. It holds a diversified basket of leading U.S.-listed BDCs, selected based on their fundamentals, a natural choice given how niche and specialized the BDC space is.

A quick glance at the top holdings reveals nothing out of the ordinary. It includes familiar, well-established names like Ares Capital Corporation, Blue Owl Capital Corporation, Golub Capital BDC, and Blackstone Secured Lending. These are some of the most reputable players in the sector.

Aggregated, the portfolio offers an estimated yield of around 11.5%, and that applies across all three share classes: INCM (unhedged), INCM.B (CAD-hedged), and INCM.U (USD).

Monthly distributions are currently set at $0.165 per unit. And because INCM is an ETF, you can buy or sell it anytime during market hours. No lockups, no redemption windows, just normal liquidity.

Fees are also reasonable. The fund charges a 0.75% management fee, which is quite fair considering it’s the only ETF of its kind in Canada. Yes, you’ll also indirectly bear the internal costs of the underlying BDCs on top of that, but that’s simply the nature of investing in this segment.