As an asset class, private equity is all the rage these days, but it remains unattainable to most investors. Leave it to ETFs to democratize this market segment, too.
For example, investors can access private equity and related companies via the ProShares Global Listed Private Equity ETF (CBOE: PEX).
PEX seeks investment results that track the performance of the LPX Direct Listed Private Equity Index. The index consists of up to 30 qualifying listed private equity companies, and the fund invests in financial instruments that ProShare Advisors believes, in combination, should track the performance of the index. It will invest at least 80% of its total assets in component securities.
The private equity space is one in which big deals could translate into big gains behind closed doors—the downside is that it was only available to institutional investors and very well-capitalized individuals. Importantly, PEX is also a credible source of income as highlighted by a 30-day SEC yield of 4.80% at the end of November.
Data confirm dividends among private equity firms are growing and steadying.
“Income investors who’ve dismissed publicly-traded alternative-asset managers because of their inconsistent payouts might want to reconsider: Many of these companies have shifted their policies to focus more on steady dividend payments,” reports Lawrence Strauss for Barron’s.
Long-Term Value Improvement
Specifically, private equity funds try to improve operations; advise, monitor and incentivize management; allow management to focus on long-term value and secure preferred access to financing. These private equity strategies also exhibit several passive components, including the ability to buy firms with specific characteristics, hold positions for long periods, double the leverage and conservatively mark a portfolio.
“Some investors have already bought in, as shares in the group—which includes KKR (KKR) and Ares Management (ARES)—have rallied this year. They all have one-year returns of at least 40%, as the accompanying table shows. These firms focus on investments such as private equity, credit, infrastructure, and real estate,” according to Barron’s.
PEX “invests exclusively in a globally diversified portfolio of listed private equity companies whose primary business is direct investments in private enterprise,” according to ProShares.
“By and large, these companies have made their dividends a lot more predictable and, by extension, palatable,” notes Barron’s.
And that’s good news for dividend investors.
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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.