Private Equity ETF Gets Competition After 30% Rally
It’s no longer a one-horse race in private equity ETFs. PowerShares Global listed Private Equity Portfolio (PSP) got a new competitor on Thursday after the ETF posted a total return of more than 30% last year.
However, investors should keep in mind that these private equity funds are risky and come with expense ratios exceeding 2% — very fees ratios for ETFs.
ProShares, an exchange traded fund provider more known for its inverse and leveraged products, is expanding its line of alternative investments with a new fund that focuses on the volatile, but potentially lucrative, private equity space.
On Thursday, the ProShares Global listed Private Equity ETF (BATS:PEX) starts trading. According to the prospectus, PEX will tries to reflect the performance of the LPX Listed Direct Private Equity Index, which consists of 30 private equity companies.
PEX comes with a 2.54% expense ratio.
The component holdings will have a majority of its assets invested in or exposed to private companies. The fund holds common stocks issued by U.S. and foreign companies, including business development companies (BDCs) for U.S. domiciled companies.
BDCs lend capital or provide services to privately-held companies or thinly-traded U.S. public companies. Since BDCs have exposure to smaller companies, the companies will be susceptible to potential risks involving bankruptcies or defaults.
The new fund will be competing directly with PSP. The PowerShares ETF leans toward smaller companies, with 53.0% in mid-caps, 24.3% in small-caps and 19.8% in micro-caps. Moreover, it has a 68.9% weighting in financial stocks. The ETF has a high 3-year standard deviation of 23.7, compared to the MSCI World Index of 16.9%. While PSP shows greater volatility, it gained 30.4% last year to nearly double the return of the S&P 500.
PSP has a 2.32% expense ratio.
Earlier this month, Van Eck Global launched the Market Vectors BDC Income ETF (BIZD) , which tracks business development companies. [Market Vectors Adds Specialized Income ETF]
PowerShares Global listed Private Equity Portfolio
For more information on new fund products, visit our new ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
