Indeed, some investors see the high management fees and sometimes murky relationships between the BDCs and the companies they invest in as yellow flags. And earlier this year, the Financial Industry Regulatory Authority included BDCs on its list of complex investment products that it will scrutinize closely in 2013.

Tracking the BDC index

Despite these concerns, BDCs are attracting investor attention. Fund managers at UBS’ E-Tracs program got an early start in this niche when it launched a pair of exchange-trade notes in the spring of 2011. Both carry expense ratios of 0.85 percent, and both are based on the Wells Fargo BDC index noted earlier.

Even as that index has posted strong recent gains, the yields on these funds remain impressive. For example, the UBS E-TRACS Wells Fargo BDC Index ETN (BDCS) sports a current annual yield of 7.6 percent.

In a sign of the appeal of high-yield plays, investors have been more squarely focused on the UBS E-TRACS 2x BDC Index ETN (BDCL), which has far higher trading volumes and a vastly larger asset base than its unlevered peer, surely reflecting the stunning 15.6 percent yield that this exchange-traded note offers.

Of course any time you see a nearly 16 percent yield, you should flinch. After all, such high yields often signal that a deep cut (or the outright elimination) of a dividend is looming. Yet in this instance, such fears may be unwarranted. The U.S. economy continues to grow—albeit at a moderate pace—and dividend streams would likely only be vulnerable if the economy slipped into recession.

This especially juicy yield is due in part to very low borrowing costs: The leveraged ETN borrows at Libor (London InterBank Offered Rate), and it’s wise to assume that as the economy strengthens, Libor will rise from its current 0.7 percent (one-year) rate to the 3 percent to 5 percent range. Still, that would only shave a commensurate amount of percentage points off of the BDCL’s projected yield, pushing it down to a still robust level.

Newest Player

The folks at ProShares took a slightly different approach when they launched the ProShares Global Listed Private Equity ETF (PEX) on February 26. “We wanted to provide globally diversified exposure to the category,” says ProShares CEO Michael Sapir.

The PEX portfolio tracks the LPX Listed Private Equity Index, which is a mix of domestic (55 percent) and foreign entities (45 percent).