Analyse/iShares Listed Private Equity UCITS ETF

Dieser ETF versucht den Spagat, über börsennotierte Holdings Zugang zur Asset-Klasse Private Equity zu liefern. USA und Nebenwerte dominieren den Index.

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Rolle im Portfolio

The iShares Listed Private Equity UCITS ETF provides exposure to the largest and most liquid publicly-listed private equity (LPE) companies from North America, Europe and Asia Pacific.

Due to the volatile nature of private equity as an asset class, this ETF is most suitably deployed as a satellite holding within an already diversified portfolio.

This ETF offers diversified exposure to an illiquid asset class that was once the preserve of institutional investors. Private equity appeals to many because of its liquidity premiums, high expected returns and for its potential as a diversifier within a wider portfolio. However, investors looking at this ETF should be aware that when investing in LPE companies, a portion of these benefits disappear. As market access increases, the liquidity premium, and hence the returns, are reduced accordingly. Also, as soon as they are listed on a stock exchange, investments in private equity companies assume additional market risk, which sees the correlation between their valuations and those of the wider stock market increase.

Investors may also be attracted to this ETF because it has produced strong, stable dividends. As of this writing, this ETF has a current dividend yield equal to 3.21% which is roughly 1.3 percentage points higher than the current dividend yield for the MSCI World index.

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Fundamentale Analyse

Over recent years, as yields have shrivelled across traditional asset classes, investors have turned to alternative investments such as private equity in their hunt for enhanced returns.

As their name suggests, private equity firms deal in the equity and debt of companies not listed on public exchanges. Broadly speaking, private equity covers four distinct types of fund, each with their own risk and return profiles.

Perhaps the best known fund type is venture capital. These funds provide equity finance and often operational support to start-up companies which don’t have access to traditional lending channels. Then there are leveraged buy-out (LBO) funds, which specialise in using leverage to purchase a company. Mezzanine funds provide financing to companies through a mixture of debt and equity, and finally, distressed debt funds specialise in providing financing for established companies that have become fallen on hard times.

Due to its prohibitively high capital investment requirements and specific knowledge requirements, private equity has historically been available only to large institutions. The listing of private equity funds on public exchanges has allowed the participation of smaller investors. Although LPEs are listed on an exchange and are relatively liquid, the underlying companies (i.e. those invested in by the private equity firms) are not. This theoretically allows investors to access the liquidity premiums and diversity benefits associated with the asset class. In practise, like other listed vehicles such as REITs, these asset class benefits are eroded when market access increases.

Private equity funds tend to target aggressive returns to compensate investors for the significant risks borne. Gearing, especially in LBO funds where it is normal to borrow up to 60% of the purchase price of a company, is commonplace within the industry, which exaggerates both profits and losses. Due to the difficulties surrounding the valuation of equity stakes, LPE shares often trade at significant premiums or discounts to their NAVs which further increases volatility.

Research has shown that the dispersion of returns between top and bottom performing private equity mangers is comparatively wide, implying that superior manager selection is the key to stellar-performance, and that in aggregate, returns for the asset class struggle to compensate investors for the risks assumed. This can be observed in the returns of the reference index, which has struggled to outperform the MSCI World index since inception in 2007.

In sum, the benefits attributed to private equity as an asset class, namely liquidity premiums, out-sized returns and the potential to diversify a portfolio are diluted when funds are publically listed and returns aggregated. This said, private equity investments tend to have medium-to-long term payoff profiles (this is especially true of LPE where fund lifetimes are not restricted) and accordingly some may still favour an investment over the long-term. Those investing in the sector may feel that the current environment of historically low interest rates (ideal for raising funds), low yields (attracting new investors into the space) and increasingly accommodative IPO markets bodes well for future returns.

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The S&P Listed Private Equity Index is a free-float market capitalisation weighted index offering exposure to liquid private equity stocks from North America, Europe and the Asia Pacific. Only companies publicly listed in a developed market and which engage primarily in private equit activities, are eligible for inclusion. Additionally, stocks must have a total market capitalization above USD150m, have traded more than 10, 000 shares a day over the previous 12 month period and have had a three-month average daily trading value above USD 500,000 as of each rebalancing. The index is reviewed semi-annually in March and September. The index caps individual stock holdings at 7.5% at the time of each rebalancing and currently has 58 constituents. It exhibits a strong US bias (~57%), with Canada (~14) and the UK (~11%) the second and third most represented countries in the index. The top 10 constituents comprise approximately 57% of the index’s value with the largest component (Brookfield Asset Management) having a ~8% weighting, followed by Ares Capital (~7%) and KKR (~7%).

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The ETF uses an optimised sampling technique to try to capture the performance of its benchmark, owning a physical basket of securities designed to match the characteristics of the underlying index but not necessarily the exact stocks in the exact weights. The fund also uses Contracts For Difference (CFD) to achieve its aims. CFDs are a type of derivative which allows participation in the price movement of a stock without the need for ownership and can provide efficient access to thinly traded equity. The fund currently uses CFDs to gain exposure to the Blackstone Group, Carlyle Group, Fortress Investment, Compass Diversified, KKR, Alternative Assets and Apollo Global Management. Cash received as dividends from the underlying stocks is put aside in a cash account and distributed to fund unitholders on a semi-annual basis. This can create a cash drag on the portfolio, causing it to underperform its benchmark in rising markets, and outperform in declining markets. In the 12 months ending mid-June 2014, the fund did not engage in securities lending.

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The fund levies a total expense ratio (TER) of 0.75% which is comparable with offerings from rival providers. It should be remembered that there are additional, investor-specific costs associated with trading the ETF, such as bid/offer spreads and brokerage commissions, which should be factored into an investment decision. There are also rebalancing costs whenever the index changes composition.

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Lyxor offers swap-based exposure to the 25 largest LPE funds globally with its PRIVEX UCITS ETF. This fund is domiciled in France and charges a TER of 0.70%.

Those investors seeking a physically replicated alternative may consider the PowerShares Global Listed Private Equity UCITS ETF. This fund tracks the Red Rocks Capital Global Listed Private Equity Index and charges a TER of 0.75%.

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Über den Autor

Morningstar ETF Analysts  research hundreds of ETFs available to European investors. The Morningstar Rating for ETFs is based on a risk-adjusted performance measure.