Indexology^® Blog

The Rapid Growth of Private Credit

Private credit, broadly defined as non-bank lending directly to companies outside traditional public markets, has seen remarkable growth over the past decade (see Exhibit 1). This segment of finance includes direct loans, mezzanine debt and other debt instruments extended primarily to middle-market companies with annual revenues between USD 10 million and 1 billion.¹ The surge is largely due to regulatory changes that were made after the 2008 financial crisis, which tightened banks’ lending capacities, especially to smaller and mid-sized firms.²

In investment spaces, investors have increasingly turned to private credit, seeking higher yields amid a low-interest rate environment and greater diversification. The global private credit market is projected to grow to approximately USD 2.6 trillion by 2029, with direct lending remaining the largest and fastest-growing category.³

Among the various entities operating within direct lending, business development companies (BDCs) have emerged in recent years and now manage about USD 500 billion in assets.⁴

BDCs: A Regulatory Structure Designed to Channel Capital into Private U.S. Businesses

A BDC is an investment vehicle created by the U.S. Congress in 1980 under the Small Business Investment Incentive Act.⁵ This legislation amended the Investment Company Act of 1940 to establish BDCs as a new type of closed-end fund aimed at providing capital to small- and mid-sized businesses that often struggle to secure traditional bank or lender financing. They give investors the ability to invest in private companies and offer several potential benefits.

• Higher income: BDCs are required to distribute at least 90% of their taxable income to shareholders.⁶
• Lower volatility: BDC returns have tended to be less volatile than traditional public equities because their underlying assets, primarily senior secured loans to private companies, are not marked to market daily and are often held to maturity.
• Diversification compared to public fixed income investments: BDCs invest in private credit with limited correlation to publicly traded bonds, which helps investors reduce interest rate and duration risk.

BDCs can be: publicly traded (USD 175 billion in AUM); private finite non-traded (USD76 billion in AUM); or private perpetual non-traded (USD 253 billion in AUM).⁷ Public BDCs are exchange listed and could offer greater liquidity and accessibility. Private non-traded BDCs are typically limited to accredited or institutional investors, often with higher minimums. Non-traded BDCs may be structured as finite-life vehicles (5-7 years) with a planned liquidity event, or as perpetual funds that raise capital continuously.

BDCs Bridge Lending Gaps and Expand Access to Private Credit

Private credit has become a vital part of the financial ecosystem, especially as banks have pulled back on lending to riskier or smaller borrowers due to tighter regulations. This pullback has created opportunities for BDCs, which fill the gap by offering flexible financing solutions.

It’s notable that some BDCs are publicly traded, allowing investors to buy and sell shares easily—something uncommon in the private credit space. This accessibility opens the door for many types of investors to participate in private credit markets.

The S&P BDC Index

The S&P BDC Index tracks publicly traded BDCs that meet certain size, liquidity and quality standards, giving market participants a broad and diversified view of the sector. The index follows transparent criteria and is rebalanced regularly to reflect changes in the market.  It also includes a variety of BDCs with different focuses, helping to provide a balanced view of private credit.

The index can serve as a benchmark for funds and ETFs seeking to provide BDC exposure in the private credit direct lending space. Exhibit 3 presents a five-year performance comparison in total return terms between the S&P BDC Index and other indices, showing that it outperformed them for much of the period.

Historically, a high dividend yield has been one of the defining characteristics of BDCs. In 2025, the top eight constituents in the S&P BDC Index offered yields ranging from approximately 6% to 16% (see Exhibit 4).

BDCs can provide a bridge between investors and growing companies needing capital beyond traditional lenders. As private credit expands, S&P Dow Jones Indices will introduce new offerings related to BDCs, direct lending and the broader private credit market.

¹ Cai, Fang and Sharjil Haque. “Private Credit: Characteristics and Risks.” U.S. Federal Reserve. Feb. 24, 2024.

² “The Impact of the Dodd-Frank Act on Small Business.” Research Dept. Working Paper No. 1806 – Dallas Fed.

³ “Private Credit Outlook 2025: Opportunity & Growth.” Morgan Stanley. Dec. 18, 2024.

⁴ Nangle, Tony. “Inside the big boom in ‘business development companies’.” The Financial Times. Sept. 19, 2025.

⁵ “H.R.7554 – 96th Congress (1979-1980): An act to amend the Federal securities laws to provide incentives for small business investment, and for other purposes.” Congress.gov. Library of Congress. Oct. 21, 1980; “H.R.7491 – 96th Congress (1979-1980): Business Development Company Act of 1980.” Congress.gov. Library of Congress. June 4, 1980.

⁶ Office of Investor Education and Assistance. “Publicly Traded Business Development Companies (BDCs): Investor Bulletin.” Investor.gov U.S. Securities and Exchange Commission. Dec. 13, 2024.

⁷ Figures based on Q2 2025 data from Berlin, Andrew. “BDC Quarterly Wrap: 2Q25.” LSTA. Sept. 3, 2025.

Over extended market cycles, Israel’s mid-cap equities have often delivered strong growth, driven by their greater sensitivity to domestic economic trends. Despite this, mid-cap companies remain underrepresented in many portfolios. The S&P Israel 70 MidCap Index addresses this gap, systematically measuring the mid-cap segment and offering a diversified look at established Israeli mid-cap companies through a transparent, rules-based framework.

A Rules-Based Approach to Israel’s Mid-Cap Segment

The S&P Israel 70 MidCap Index is derived from the broader S&P Israel 100 Index, which includes the 100 largest and most liquid stocks listed and domiciled in Israel. Constituents are selected based on a combined ranking of float-adjusted market capitalization (FMC) and liquidity, ensuring both investability and size relevance.

The index targets the 70 mid-cap companies ranked just below the top 30 large-cap companies, providing a focused view of Israel’s dynamic mid-cap segment. It is FMC weighted, with caps on individual stocks and sectors to help manage concentration risk.

Rebalanced quarterly using a transparent, rules-based methodology, the index provides a disciplined approach to tracking mid-cap performance within Israel’s equity market.

Breaking Down the Index

A key feature of the S&P Israel 70 MidCap Index is its diversified sector composition, reflecting the structure and diversity of Israel’s mid-cap economy and offering a broader view beyond Information Technology, compared to the large-cap segment. As of Dec. 31, 2025, Real Estate represented the largest share at 24.18%, driven by sustained housing demand and population growth (see Exhibit 2). Industrials represented 20.25%, highlighting the sector’s strength in manufacturing and infrastructure. Information Technology accounted for 11.23%, while Energy (10.68%), Consumer Discretionary (7.08%) and Consumer Staples (4.86%) showed meaningful weight in domestic consumption and industrial energy demand. Smaller allocations to Financials (6.97%), Communication Services (4.20%) and Materials (2.88%) demonstrated comprehensive sector coverage. This diversified structure gives a wide view of Israel’s mid-cap companies while maintaining a balanced sector profile.

Relative Valuation Advantage

The S&P Israel 70 MidCap Index has displayed relatively better valuation metrics compared with the large-cap segment, underscoring the possible appeal of mid caps in Israel. As of Dec. 31, 2025, the index had a price-to-cash-flow ratio of 10.5, lower than the S&P Israel 30 LargeCap Index’s 13.5, and a higher indicated dividend yield of 2.5% versus 1.7% for the S&P Israel 30 LargeCap Index (see Exhibit 3). This combination of moderate valuations and strong income potential highlights the distinctive investment profile of Israel’s mid-cap segment within the broader market.

Performance Review

In 2025, the S&P Israel 70 MidCap Index delivered its strongest performance for the back-tested period, with a total return of nearly 49.32% in ILS terms, gross of tax. The exceptional results underscore the resilience and growth potential of Israel’s mid-cap segment.

Beyond the calendar-year numbers, the S&P Israel 70 MidCap Index has shown robust long-term performance. Over the past decade, the five-year rolling performance has averaged an annualized 13.97%, with the most recent five-year period reaching 17.87%. These results highlight the consistency and growth potential of Israel’s mid-cap segment within a disciplined, rules-based framework.

Conclusion

Featuring a sector composition distinct from Israel’s large-cap segment, the S&P Israel 70 MidCap Index aims to provide a diversified view across Real Estate, Industrials, Information Technology and other key areas of the mid-cap economy. The index has consistently delivered strong performance over the back-tested period, while maintaining moderate valuations, often higher than large caps. Its transparent, rules-based methodology seeks a balanced representation of Israel’s mid-cap companies within a disciplined framework.

The S&P U.S. Style Indices completed their annual rebalance in December 2025. Exhibit 1 shows that the 2025 changes were less pronounced than prior years: turnover for the S&P 500^® Growth and S&P 500 Value was lower than the past three annual rebalances. Nonetheless, there were several shifts in index composition.

The most significant movement was in Information Technology. Post-rebalance, Information Technology companies accounted for nearly half of the S&P 500 Growth, an increase of 7.5% (see Exhibit 2). This gain was driven by the reclassification of some of the largest S&P 500 companies, supported by strong earnings, sales growth and momentum factors. Meanwhile, the weights of Consumer Discretionary, Industrials and Consumer Staples collectively declined by 6.8%.

Although the post-rebalance Information Technology and Communication Services weights in the S&P 500 Growth rank among the highest since the current S&P U.S. Style Indices’ approach to defining style was introduced in 2009, these levels are not unprecedented. For instance, Information Technology companies accounted for 55.3% of the index in August 2000 (see Exhibit 3). Likewise, Energy’s absence from the S&P 500 Growth after the 2025 reconstitution is not unprecedented—this last occurred in May 2002, following a long-term decline in its weight. Specifically, Energy companies exhibited stronger price-to-book, price-to-earnings and sales-to-price ratios alongside weaker sales and earnings growth. These shifts underscore how the S&P U.S. Style Indices can reflect prevailing market trends, with AI currently serving as a key driver of the U.S. Information Technology and Communication Services sectors, while mostly lower, more volatile commodity prices shaped the reclassification of Energy companies after record profitability in 2021-2022.

While Financials has traditionally dominated the S&P 500 Value, Information Technology’s growing influence in the U.S. large-cap segment has reshaped the index composition. Since the 2024 rebalance, Information Technology has held the largest sector weight in the S&P 500 Value and maintained that leadership throughout 2025 (see Exhibit 4).

Although the reclassification of various tech companies contributed to Information Technology’s weight falling by 8.5% at the latest rebalance, the sector continued to be the largest in the S&P 500 Value (see Exhibit 5). Financials was the second-largest sector, and its weight increased at the latest rebalance. Consumer Discretionary’s weight rose by 3.1%, reaching its highest post-rebalance weight in the S&P 500 Value since 2009 and ranking as the third-largest sector at 11.3%. Industrials (up 2.7%) and Consumer Staples (up 2.2%) also saw their weight increase.

These shifts highlight the growing influence of Information Technology within the S&P 500 and illustrate how sector weights adjust to changes in company fundamentals and market dynamics. While these trends explain much of the rebalance impact, the underlying methodology remains the foundation of the index composition. Understanding these mechanics can offer valuable insight into how growth and value indices evolve over time and may also help with interpreting changes beyond headline numbers.

Recent market commentary has declared that 2025 was a brutal year for stock picking, with USD 1 trillion pulled out of active equity mutual funds during the year, according to the Investment Company Institute. The year was characterized by sharp double-digit swings for the S&P 500^®, and in such environments filled with bouts of volatility, we would naturally have expected active managers to shine.

So what might explain this lackluster performance? One notable headwind, especially over the past three years, has been the outperformance of the S&P 500’s largest constituents. As a result, the weight of the top 10 stocks in The 500^® has climbed accordingly, from 31% in 2023 to almost 40% in 2025. If active managers were underweight the largest stocks, then they were more likely to underperform.

A related headwind for stock pickers was that these mega-cap gains were driven by a handful of stocks, leading to a positively skewed distribution of returns, with an average return greater than that of the median, consistent with 19 out of the prior 24 years. Consequently, only 30% of stocks outperformed the S&P 500 in 2025, slightly higher than in the prior two years but still relatively low by historical standards. If active managers held portfolios concentrated in a handful of stocks, they were more likely to miss out on holding the handful of winners.

Despite these obstacles, one silver lining may have been the rise in cross-sectional volatility, or dispersion, which measures how differently stocks are performing relative to each other. The value of stock-selection skill rises when dispersion is high, which could have meant greater opportunities for skillful stock pickers to outperform. Exhibit 3 shows that large-cap stock-level dispersion in 2025 was higher than the historical average and the prior two years. We know from our SPIVA^® U.S. Mid-Year 2025 Scorecard that 46% of large-cap funds outperformed the S&P 500 in H1 2025,¹ evidence that there were opportunities for stock pickers to shine, particularly during the tariff-related turmoil in the first half of the year.

As we begin 2026, we can look to implied dispersion to understand the potential for future opportunities for stock selection. We observe in Exhibit 4 that the Cboe S&P 500 Dispersion Index (DSPX), which uses listed options to measure the expectations for dispersion over the next 30 calendar days, rose to 33.81 as of Jan. 12, 2026. This means the market expects that the spread of annualized S&P 500 stock returns will have a standard deviation of 34% over the next month and, especially as we approach Q4 earnings season, could signify positive prospects. Another potential tailwind may be the recent broadening of the rally, with the S&P SmallCap 600^® up 3% since the start of the year compared to The 500.

The current environment may be fortuitous, but forecasting future active manager performance may be as or even more challenging than predicting future market performance. For those who have declared 2026 to be the year of the stock picker, a reminder that we heard similar proclamations at the end of 2024 and in many years prior, but as we know from our SPIVA Scorecards, majority underperformance remained the norm more often than not.

¹ Please stay tuned for the SPIVA U.S. Year-End 2025 results.

Looking back at 2025, some key themes emerged and drove many market conversations. Many different themes—including the rise of artificial intelligence (AI), tariffs, risk of inflation and a focus on defense—set against a backdrop of broader macroeconomic, geopolitical and technological changes created a period of increased market uncertainty across industries. Volatility, as measured by VIX^®, remained high for most of the year,¹ reflecting ongoing investor concern. The S&P 500^® experienced notable swings in 2025, approaching bear-market levels in April amid concerns over tariffs before rallying to record highs by June as enthusiasm for AI fueled the market.

But volatility was not the entire story. High readings for both VIX and the Cboe S&P 500 Dispersion Index (DSPX) emphasized that broad macroeconomic trends influenced market direction in 2025 and resulted in a wide variation in performance across industries.

So, who were the leaders and laggards across the U.S. equity landscape in 2025? In a year when headlines focused on big themes, the S&P Select Industry Indices offered a valuable way to look beyond the broad market and highlight the key factors driving this year’s most significant moves, as shown in Exhibit 1.

To start, the Metals & Mining industry had a golden year, experiencing an 84.2% increase in 2025. Rare earth elements drive the modern world, with technological advancements boosting demand across various sectors, from AI to defense. Amid rising geopolitical tensions, the U.S. government took measures to bolster domestic supply chains for strategic metals, further supporting the industry’s strong performance. To top it off, gold prices hit record highs in October, as shown in Exhibit 2, fueled by safe-haven demand amid ongoing geopolitical concerns, economic uncertainty and a weaker U.S. dollar.

Aerospace & Defense ranked as the second-highest growth sector among the S&P Select Industries, posting a significant 46.8% increase, largely driven by rising geopolitical tensions worldwide.

AI-related industries, including Semiconductors and Technology Hardware, also ranked among the top performers in 2025, increasing by 30.1% and 27.3%, respectively. Telecom, another industry closely tied to AI, also delivered strong results, with a 45.5% gain, outperforming the S&P Total Market Index as shown in Exhibit 3.

This standout performance in Telecom was fueled by strategic mergers, ongoing technological advancements and increasing demand for digital infrastructure.² Defense-linked telecom companies contributed significantly as well. Ondas Holdings, for example, achieved an extraordinary YTD total increase of 1,022.0%,³ based on market optimism about its military and security technologies.

While some industries thrived, others that were more influenced by macroeconomic and political shifts and less influenced by technological trends faced significant challenges. Industries sensitive to tariffs, such as Homebuilders and Healthcare Equipment, struggled, as illustrated in Exhibit 4.

Homebuilders faced a difficult 2025, dropping 0.4% YTD. The industry struggled with declining new home sales, primarily due to affordability issues, higher construction material costs and persistently high interest rates. Looking ahead, tariffs on steel and aluminum are expected to further slow the construction market, possibly leading to more project delays and cancellations into 2026.⁴

Healthcare Equipment faced similar headwinds, dropping 0.3% YTD. Tariffs on medical devices and products weighed on suppliers, distributors and hospitals, further dampening overall industry sentiment.⁵

To close out the 2025 Wrapped, Oil & Gas Exploration & Production was the biggest decliner, falling 1.9% for the year. In 2025, crude oil prices overall declined as global supply exceeded demand, reflecting mainly negative performances for the industry, as shown in Exhibit 5.

In 2025, the market moved unevenly; some industries surged while others struggled, shaped by macro forces. The S&P Select Industry Indices offered valuable insights into these shifting trends, highlighting both leaders and laggards across the volatile and dispersed U.S. equity landscape. As market dynamics continue to evolve, with ongoing concerns about a potential AI bubble,⁶ lingering uncertainty over tariffs and rapidly changing geopolitics in the region, staying attuned to industry-level developments could prove crucial in helping understand the key drivers of the market and the economy in 2026.

¹ Vörös, Benedek. “Rallies, Records and Relentless Restlessness: A Tale of Markets in 2025.” S&P Dow Jones Indices. Dec. 16, 2025.

² S&P Global Ratings. “U.S. Telecom And Cable 2025 Outlook: Convergence, Consolidation, And Disruption.” Jan. 13, 2025.

³ Data as of Dec. 9, 2025.

⁴ S&P Market Intelligence. “US tariffs: Impact on the US construction industry.” July 21, 2025.

⁵ S&P Ratings. “The Health Care Credit Beat: Medical Devices And Supplies Tariff Impact Muted–For Now.” Oct. 22, 2025.

⁶ Ganti, Anu. “Animal Spirits or Anxiety?” S&P Dow Jones Indices. Nov. 13, 2025.