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Surprise ETF Losers From Oil’s Decline


The United States Oil Fund (USO) tumbled nearly 5% on Monday on volume that was about 50% higher than the daily average, bringing its three month loss north of 39%.

As has been widely noted as USO and other futures-based oil ETFs have plunged, there have been plenty of other ETF victims. That list includes sector, international and single-country funds. It turns out that high-yielding private equity ETFs have also been crimped by oil’s slide. [Oil Saps Frontier Market ETFs]

While nearly as startling as oil’s decline, the PowerShares Global Listed Private Equity Portfolio (PSP) and the ProShares Global listed Private Equity ETF (PEX) have shed an average of 3.3% over the past 90 days, declines that are all the more disappointing when looking at a 6.4% jump for the Financial Select Sector SPDR (XLF) .

Private equity firms, including some that dot the lineups of PEX and PSP are major energy investors. Apollo Global Management (APO), Blackstone (BX) and Carlyle Group (CG) are among the private equity firms that have lost $11.7 billion in bets on 27 publicly traded energy companies since June, report Devin Banerjee and David Carey for Bloomberg.

The $528.7 million PSP, which allocates over 60% of its weight to buyout firms based outside of the U.S., features a 5.1% weight to a Blackstone derivatives product as well as a combined 4.7% weight to shares of Apollo, Carlyle and Blackstone.

PEX, which had $10.1 million in assets under management at the end of the third quarter, does not feature exposure to those stocks. PSP and PEX have trailing 12-month trailing yields of 10.5% and 11.3%, respectively. [Unique Sources of ETF Yield]

Losses for private equity-backed energy companies have been severe. For example, Laredo Petroleum (LPI), EP Energy (EPE) and Kosmos (KOS) have plunged an average of 39% over the past 90 days, nearly triple the loss for the Energy Select Sector SPDR (XLE) over the same period. Each of those companies features a private equity firm as its largest shareholder, according to Bloomberg.

Private equity firms that hold high-yield corporate bonds could feel an added pinch. Ongoing weakness in oil prices could create added stress for already cash-strapped high-yield E&P issuers. With oil prices tumbling, production costs at various shale formations high and the ability of some shale operators to generate cash challenged, some money managers are forecasting a raft of junk defaults in the energy sector. [Warnings for Junk Bonds With Big Energy Exposure]

PowerShares Global Listed Private Equity Portfolio