Well-run private equity firms are currently in a strong position to increase the value of their investments. The main reason: COVID-19 has opened up opportunities for many such companies to purchase assets at discounted or even discounted prices compared to a year ago.
What is Private Equity?
Private equity can be defined as venture capital provided outside of listed markets. Private equity firms invest in established private companies and take an equity stake, usually more than 50%. They also typically participate in the day-to-day management of their investments with the aim of making capital gains or creating value by selling or floating these companies, in addition to annual dividend yields.
Unlike venture capital, which primarily targets start-ups, especially in high-growth areas such as the technology sector, private equity firms typically invest in established companies. Other differences between these two types of businesses are beyond the scope of this article.
In 2018 there was nearly $ 350 billion in global private equity funds.
For investors unsure which companies will create the most shareholder value in the long run, exchange-traded funds (ETFs) can provide exposure to a range of companies. However, keep in mind that these funds typically have an annual expense ratio.
With that information in mind, here are two ETFs targeting private equity firms:
1. Invesco Global Listed Private Equity ETF
Current price: $ 13.02
52 Week Range: $ 6.55 – $ 13.18
Dividend Yield: 6.25%
Expense Ratio: 1.59%
The Invesco Global Listed Private Equity ETF (NYSE 🙂 provides access to private equity companies, including listed companies, business development companies, master limited partnerships and other companies investing in or lend capital to private companies.
We previously covered corporate development companies.}} In the US, master limited partnerships are publicly traded partnerships that typically offer high dividends (or cash distributions). By law, they generate more than 90% of their income from eligible operations that usually take place in raw materials, natural resources or real estate. (We plan to cover ETFs targeting master limited partnerships in a separate article).
PSP, which has 67 stakes, tracks the Red Rocks Global Listed Private Equity Index. The fund was traded in 2006. Net assets under management amount to nearly $ 180 million.
Almost 31% of companies are in the top ten for stocks. Aerospace Component Manufacturer, TransDigm Group (NYSE :), Netherlands-based consumer internet platform Prosus (OTC :), Global private equity firm with headquarters in Switzerland Partners Group (OTC: ) private investment company Blackstone Group (NYSE :), and Australian-based conglomerate Wesfarmers (OTC: {{942285 | WFAFY) whose diverse activities are expanding recreation businesses, home improvement, outdoor living and energy, names in the fund lead.
In terms of industries, resources are divided among financial services (64.18%), industrial and services (14.06%) and consumer discretionary (11.71%). US companies are at nearly 40%, followed by the UK, Sweden, Switzerland, the Netherlands and Australia among others.
The fund is up 1.49% since the start of the year, reaching a 52-week high on December 2.
2. ProShares Global Listed Private Equity ETF
Current Price: $ 32.21
52 Week Range: $ 17.49 – $ 36.03
Dividend Yield: 8.66%
Expense Ratio: 3.41%
The ProShares Global Listed Private Equity ETF (NYSE 🙂 provides access to a range of global private equity firms that invest directly in private companies.
PEX, which has 30 holdings, tracks the LPX® Direct Listed Private Equity Index. The fund was traded in 2013. Net assets under management are approximately $ 17 million, much less than those in PSP.
About 60% of companies are in the top ten of stocks. Business Development Company Ares Capital (NASDAQ: ) UK-based private equity and infrastructure investment specialist 3i (LON 🙂 Canada-based Onex (OTC :), (TSX :), which focuses on private equity investments in electronics manufacturing and healthcare information technology, and two companies headquartered in France, private equity and venture capital firm Eurazeo ( PA 🙂 and investment group Wendel (PA 🙂 lead the names in the fund.
In terms of industries, PEX is not as diversified as PSP and the financial services industry comprises 94.6% of its holdings.
The ETF is down about 6.5% since the beginning of the year. Potential investors looking for a PE fund may want to study both funds more closely. If we had to choose between the two, we would probably prefer PSP at this point.
