After Being Left for Dead, These High-Yield Stocks Look to Rally Again. Here's How to Play It.

When it comes to the market sub-segment devoted to investing in business development companies (BDCs) — and the VanEck BDC Income ETF (BIZD), which collects them into one tidy stock basket — there's a situation going on. I'd say these stocks are again catching a bid. But not after a first-half shellacking.

The chart below is a solid, optimistic chart to me. There's some rediscovery of this beaten-down market area. But don't kid yourself. As I'll discuss below, there are some major overhangs here, which can appear again at any time. For now, the upward price trend is heartening. And the PPO recently crossing above the important zero line has been correlated with nice up moves in the past.

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BIZD's stock holdings are top-heavy, particularly with Ares Capital (ARCC) at 14% of assets. That has as much to do with the sinking fortunes of many of the stocks below it, based on market fears of illiquidity and strong demand — not for the stocks, but from investors to get their money out of those firms' private partnerships.

BIZD is still a $1.7 billion exchange-traded fund (ETF), so there remains a lot of interest in this set of stocks. And at 10x trailing earnings, it is much cheaper on paper than the broad stock market. Also note that the five-year beta is only 0.64, which tells me that until this recent wave of concerns, BIZD was a steady, high-income holding. It yields around 11% currently.

BDCs are different from your typical listed stocks. They operate as closed-end investment funds that provide direct private debt financing to small-to-mid-sized middle-market businesses. That industry's recently publicized trend toward investors asking for capital back during regular quarterly liquidity opportunities naturally spooked investors.