Which Private Equity ETF Should You Invest In?

ETF

The current year has brought about changes in the financial markets. What worked in 2019 hasn’t delivered the same results for 2020. There are more challenges in the investing environment. It’s necessary to be objective when you examine your goals. Consideration for switching your holdings may be necessary to strengthen your current investment strategy. Private equity exchange-traded funds focus is oriented toward transactions. They expose stakeholders to private equity investments holding the potential for strong returns on investment. The private equity sector is involved with the capital of entities with high net worth. EFTs obtain equity rights in businesses with high potential for moderate to high returns in exchange for investment capital for expansion and enhancing cash flow positioning. Here are the top recommended private equity EFTs for 2020.

5. Etracs Wells Fargo MLP EX-Energy ETN FMLP (New York Stock Exchange)

According to Investopedia, FMLP is a top recommendation that blends features of bonds and ETFs. The EFT note offers investors results similar to the Wells Fargo Master Limited Partnership Ex-Energy Index. The index provides a measure of all non-energy master limited partnerships on the Nasdaq and NYSE, performance. The index is comprised of companies that exclude the energy industry with capitalization weighting. The included companies require a $100 million minimum market cap. The notes are issued by UBS. Investors receive broad exposure to private equity businesses. The expense ratio is 0.85%. The dividend yield is 5.96%.

4. Invesco Global Listed Private Equity Portfolio PSP (NYSE Arca)

PSP is currently the largest ETF in the private equity classification. The total asset value is more than $151 million. The fund is comprised of 78 private equity companies throughout the world publicly-listed including financial institutions and business development companies. The PSP fund tracks the Red Rocks Global Listed Private Equity Index. The dividend yield is high at 3.95% with an expense ratio of 1.8%.

3. ProShares Global Listed Private Equity ETF PEX (BATS Trading)

The third ETF listed in the top 3 by Investopedia is Proshares Global Listed Private Equity ETF. The fund provides results that are like the LP Direct Listed Private Equity Index performance measures. It includes up to 30 publicly-listed private equity companies involved in lending capital and private investments. The notes are issued by ProShares. The asset base of the fund is $16.27 million. This fund is recommended for investors seeking global diversity. The dividend yield is 11.6% with an expense ratio of 3.13%. The PEX fund’s holdings include the Onex Corporation, Ares Capital Corporation, and others.

2. Source Nomura Modelled PERI UCITS ETF PERI (London Stock Exchange)

PERI is a new exchange-traded fund that is a joint effort between Nomura, an Asian investment bank, and Source of London, an ETF provider. This ETF takes a unique approach to invest to match the returns of investing in private e2uity buyout funds. It accomplishes this through exposure to the public market instruments listed. Exposure is synthetic in a liquid ETF format. The minimum investment required is less at just one share. Although less than most private equity ETFs, it’s expensive at $12,000 per share, traded in USD. This ETF can be bought and sold on exchange within the trading day. Nomura introduced this fund in December of 2012. It is the first daily investible index that targets similar returns to those based on a board of global investment in private equity buyout funds. This ETF is linked to the performance of the Nomura QES Modelled Private Equity Returns Index. The quantitative think tank Quantitative Equity Strategies served as a sub-adviser with data obtained by Prequin, a data intelligence source for the alternative asset sector. The index was developed on a platform of private equity research suggesting much of the PE buyout fund returns may be achieved by investment in private investments of the funds’ public market equivalents. The index takes a theoretical approach using a proprietary system model involving financial algorithms for weekly allocations to public market equivalents within the Large and mid-cap equity indices, including S&P Midcap 400 and S&P 500 indices. Performance targets capital returns of private equity buyout funds invested, combined with the risk-free rate of return on capital awaiting deployment. The annual management fee is on the high side at 0.30% with an annual 1% index fee, along with a 0.5% implementation cost.

1. DB X-trackers LPX MM Private Equity UCITS ETF XLPE GR

According to ETF Strategy, the fund launched in January of 2008. The fund achieves exposure through holding shares of private equity companies listed. The AUM is $196 million and the return of 16% annually over the past five years. Exposure to private equity occurs through the evaluation of enterprise value with investments in companies involved in the production and use of natural resources with indirect investing. Investors enjoy the benefits of transparency, liquidity, and no lockups. This fund tracks the SummerHaven Private Equity Natural Resources Strategy Index.

Final thoughts

Any investment represents a risk of loss, along with the potential for a substantial return on your investment. Before choosing a private equity EFT, advice from a financial advisor to double-check the performance of the fund you’re considering is a wise plan. If you’re somewhat familiar with trends and risk assessment, you may be able to proceed without the need for outside assistance. Double check the investment strategies that the issuer of the EFT follows. Some are more transparent and liquid than others. Private equity EFTs are indirect investment strategies that can offer less volatility than investing through the direct methods of purchasing stocks. Understand the annual fees associated with the ETF you are considering to determine the potential for return, along with dividend payouts, if any. Bear in mind that some private equity EFTs have minimum investment requirements of one share, but the price per share can be high.



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