Private equity exchange-traded funds (ETFs) hold companies which can be financially complicated because they use leverage and are strongly transaction-oriented. However, they provide investors with exposure to private equity investments and can offer significant and attractive returns on investment.
Private equity firms have been increasingly active since 2000. This segment of the economy has experienced a surprising turnaround since the economic slump of 2008, largely due to a surplus of money inflow, and they rounded out 2014 with the highest global investment since 2007.
Private equity caters to the capital of high net worth entities. It obtains equity rights in companies with significant potential that are seeking capital to improve their cash flow positions or expand. Private equity firms provide finances and the financial knowledge to run the businesses they acquire. In 2018, the majority of the world’s private equity assets – 56% – are in North America. Europe has the next largest allocation at 29%, followed by Asia with 11%.
Private equity ETFs offer portfolio diversification from a geographical standpoint and in terms of investments. These firms utilize a variety of strategies for acquiring equity stakes or debt positions that are not generally accessible to individual investors. Private equity is typically considered a less volatile asset class that can offer both stable returns and relatively higher dividends.
Invesco Global Listed Private Equity Portfolio
The Invesco Global Listed Private Equity Portfolio (NYSE Arca: PSP) is the largest private equity ETF, with assets totaling over $151 million. It is the perfect option for investors looking for global exposure, as it provides access to 78 publicly listed private equity companies worldwide, including business development companies and financial institutions. This fund tracks the Red Rocks Global Listed Private Equity Index. The index incorporates between 40 and 75 publicly listed equity companies.
The expense ratio for this fund is 1.8% and it offers a high dividend yield of 3.95%. Holdings for this fund include 3I Group Ordinary Stock Chart (OTC Markets: TGOPF), the Onex Corporation (OTC Markets: ONEXF) and Partners Group Holdings (OTC Markets: PGPHF).
ProShares Global Listed Private Equity ETF
The ProShares Global Listed Private Equity Portfolio (BATS Trading: PEX) is a fund that aims to provide investors with results, excluding fees, similar to the performance of the LPX Direct Listed Private Equity Index. This index, similar to the underlying index of PSP, includes up to approximately 30 publicly listed private equity companies which share a primary purpose and function to invest in privately held companies and to lend capital.
Issued by ProShares, this fund has an asset base that totals $16.27 million as of June 2020. This fund is ideal for investors who are looking for global diversity. The fund has an expense ratio of 3.13% and offers a dividend yield of 11%. Holdings for this fund include the Ares Capital Corporation (Nasdaq: ARCC), the Onex Corporation and 3I Group PLC. (Nasdaq: III).
ETRACS Wells Fargo MLP Ex-Energy ETN
The ETRACS Wells Fargo MLP Ex-Energy ETN (NYSE Arca: FMLP) combines aspects of both ETFs and bonds. This exchange-traded note aims to provide investors with results that mimic the Wells Fargo Master Limited Partnership Ex-Energy Index. The index is designed to act as a metric for the performance of all non-energy master limited partnerships listed on the New York Stock Exchange (NYSE) or the Nasdaq stock exchange meeting various eligibility requirements, such as minimum market capitalization. The index is capitalization-weighted and composed of companies that are not energy-focused and have a minimum market capitalization of $100 million.
Issued by UBS, this fund provides investors with substantial exposure to private equity companies with a non-energy focus. FMLP has an expense ratio of 0.85% and a offers an attractive dividend yield of 5.96%. For investors who prefer debt security ETNs, this is useful investment access tool for gaining exposure to private equity investments.