After an early year lull, ETF issuers are back on the product
development trail with a series of new launches. While most of
these have been innovative-option focused funds, we have also
seen some expansion in the equity world as well.
The latest ETF on this front is from ProShares, a company that
is arguably best known for its leveraged and inverse
. However, the company is slowing branching out beyond these
geared products, and its latest beachhead in the unleveraged ETF
world comes to us in the form of their brand new
Global Listed Private Equity ETF (
PEX in Focus
This ETF looks to track the LPX Direct Listed Private Equity
index, before fees and expenses. This approach looks to give the
fund wide exposure to the world of private equity, albeit just
those firms that are listed on public exchanges around the globe
Create a Diversified Portfolio Using ETFs
These companies include firms that have the economic
characteristics of private equity, but are easily tradable on
exchanges. This approach gives investors exposure to a wide swath
of companies, allowing for an incredible level of
diversification across not only geographies
, but also investment and financing styles as well.
In terms of holdings, firms like American Capital Corp and
Ares Capital dominate for U.S. companies, while companies like
Onex and 3I Group lead the international charge. In total, the
ETF consists of about 30 securities, with a definite focus on mid
and small cap firms.
Investors should note though, that fees are rather high in
this product thanks to a heavy acquired fund fee. The total
expense ratio comes in at 2.54%, due to 1.94% in acquired fees,
1.00% in investment advisory fees, and then a fee waiver to get
the total at 254 basis points a year.
Obviously, this makes PEX somewhat pricey by traditional ETF
standards, and thus might not be a great choice for those seeking
a low cost avenue. However, it may be one of the only ways to
target global private equity in exchange-traded form, so somewhat
of a premium should be expected (also see
Who Says iShares ETFs Aren't Cheap?
How Does It Fit In A Portfolio?
This ETF could be appropriate for those looking for a liquid
global choice to play the private equity market. Investors
clearly have plenty of cash on hand, and with asset prices
soaring, these professional investors could have an easy time of
increasing shareholder value.
These private equity firms may also help to diversify a
portfolio, not only from a geographic, but also an investment
perspective as well. That is because these firms engage in a
variety of strategies-buyouts, growth, etc.-via a number of
styles-taking equity stakes or debt positions-that are not always
available to the everyday investor.
It is true that the ETF is a relatively high cost choice in
the space though. The expense ratio over 2.5% is likely to be
prohibitive to many cost-focused investors. Bid ask spreads could
also be relatively wide-at least initially-depending on how
popular the ETF is, and how easy it is to trade the international
Still, this new ETF is one of the only options available in
the space, and acquired fund fees do appear to be the norm in the
segment (also see
Are Analyst Recommendation ETFs Worth the
Can It Succeed?
This private equity fund faces a very rocky road to success.
The ETF faces stiff competition from a heavily entrenched, and
similar, competitor, the
PowerShares Global Listed Private Equity Portfolio (
This ETF has been around since 2006 and it holds a robust
portfolio of over 60 stocks. It also charges investors a high
expense ratio of 2.32%, but this is obviously less than what
investors see in PEX (read
11 Great Dividend ETFs
Given this expense differential and the higher volume of PSP,
it may be somewhat difficult for PEX to accumulate assets
initially. Instead, the new ProShares fund will have to rely on
some solid outperformance and fresh private equity ETF demand in
order to power this product to prominence in what is likely to be
a very tough corner of the ETF market.
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