An improving economic environment and growing merger and acquisition activity could support private equity exchange traded funds and bolster yields.
M&A activity help business development companies find new deals and make high-interest loans, writes Jordan Wathen for the Motley Fool.
“The M&A market is finally picking up and we’re very happy with what we’re seeing…. We needed M&A in the technology world for quite some time and it’s finally happening after literally waiting 36 months,” Len Tannenbaum, CEO at Fifth Street Financial, said in thea rticle.”
“Post-crisis there’s a lot of scar tissue built up in the system, and a lot of risk aversion on the behalf of corporates…and, quite frankly, that seems to be abating,” Manuel Henriquez, CEO at Hercules Technology Growth Capital, said in the article.
Additionally, M&A allow companies to generate fee income from orgination fees and gain-on-sale revenue, which can trickle out as attractive dividend yield for investors.
The PowerShares Global listed Private Equity Portfolio (NYSEArca: PSP) has a 6.46% 12-month yield. PSP gained 23.7% year-to-date, compared to the S&P 500’s 21.2% return. The ETF has a 2.19% expense ratio.
PSP tracks a global collection of 40 to 75 private equity companies, including business development companies, master limited partnerships and other companies that invest in, lend capital to or provide services to privately held companies.