The list of this year's worst-performing exchange-traded funds (ETFs) is predictably littered with inverse and leveraged funds, but when those exotic products are stripped out, there are still some basic approaches on the offenders' list.
To the dismay of income-hungry investors, the 100 worst-performing ETFs of 2025, excluding bearish and geared funds, include covered call funds, real estate ETFs, and other income-oriented fare. The "other" category includes the VanEck BDC Income ETF (BIZD +1.35%).
This ETF has been a dividend dud in 2025 and could be weak again next year. Image source: Getty Images.
To be fair to this ETF, it's down only about 10% year to date, and there are far worse offenders, but among dividend funds, this product is a clear laggard, and it could face additional challenges in 2026.
Why the BDC ETF is lagging
The "BDC" in this fund's title stands for business development company -- a type of financial services firm that provides capital to distressed or small and midsize companies that traditional creditors ignore or simply don't want to lend to.
They can be alluring to income investors, as BDCs are known to generate outsize yields. This VanEck fund proves as much, as its trailing-12-month dividend yield is 12.38% as of Nov. 18. Good luck finding a yield like that with a basic financial services ETF. This is where things get interesting. Like other high-yield dividend assets, the BDC ETF is sensitive to interest rates, but not in the way many investors are accustomed to.
While high-dividend sectors, such as real estate and utilities, are thought to benefit from the Federal Reserve lowering interest rates, BDCs often react in the opposite fashion, as this ETF has done this year. This is because these companies package their loans as floating-rate notes (FRNs) -- a fixed income category that's positively correlated with rising rates.
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Key Data Points
FRNs' structure explains why this ETF and its holdings are rate-sensitive. When interest rates rise, a BDC generates more interest income, but the opposite is true when rates fall. That's something to consider, particularly if Fed Chair Jerome Powell is sent packing in 2026. Should that happen, his successor is likely to give the White House what it wants: more interest rate cuts that could pressure the BDC ETF.
About those dividends...
There's no denying the VanEck ETF packs a punch on the yield front, but elevated yields don't always equate to reliable dividend payments. Dividend reliability is paramount and as a group, BDCs don't have thanks to lower interest rates. Dividend coverage ratios are already trending in the wrong direction, and some experts believe these lenders could deliver dividend cuts in the coming quarters.
Indeed, BDC sentiment is currently gloomy. Fitch Ratings polled attendees at its recent BDC conference, and 42% of respondents said the operating environment for these lenders will be worse in 2026 than it was this year. Just 23% said it will improve. Additionally, 23% said that dividends/earnings pressure are the biggest areas of focus for BDCs in 2026.
That doesn't mean all of this ETF's 32 holdings are destined to be dividend offenders next year, but the possibility exists that 2026 will be a year in which midmarket lenders prioritize asset coverage, liquidity, and portfolio credit strength over dividend growth and big yields.