Although ProShares is best known for its lineup of leveraged and inverse ETFs, the company is beginning to branch out into the unlevered market as well. The firm has debuted more of these types of products in the recent past, while it has also begun to offer up more in terms of filings in this regard as well.
The company just released a new filing on a hedged high yield bond ETF while it also revealed plans for a new equity focused ETF as well. This proposed product, according to a recent SEC filing, will target the private equity industry as the ProShares Private Equity-listed ETF.
While some details were not released in the initial filing, such as expense ratio or ticker symbol, a few key points were made available, which we have highlighted below:
The fund will track the LPX Listed Direct Private Equity Index which looks to act as a broad benchmark for the private equity industry. In order to be included, the private equity portion of the company’s business must be at least 50% of the total assets (read Invest like Mitt Romney with These Three ETFs).
This will include direct and indirect private equity investments, the fund management business, as well as cash and post-IPO listed investments as well. In terms of ‘direct’ private equity investments, the provider will consider those that are in either equity, mezzanine, or debt facility of a private firm, or in investments in limited partnerships managed by the investee’s team.
Potential investors should also note that the index provider intends for there to be 30 companies in the final basket with a liquidity screen applied in order to weed out the illiquid firms. Additionally, the filing says that the holdings will consist of American and foreign securities and that is ‘including in large part business development companies’ so this type of security could make up a decent chunk of assets in the final ETF (read Invest like Warren Buffett with These ETFs).
This could make the ETF an interesting alternative for those seeking a level of exposure in the financial market, but something that goes beyond big banks and targets companies closer to the ground floor. Furthermore, the space generally pays out a decent yield so interest in these types of securities could remain high assuming that the low rate environment continues for quite some time.
In terms of alternative private equity ETFs, there aren’t a great deal of ETFs currently occupying the space, but there are a few competitors out there that could square-off against ProShares’ proposed ETF nonetheless. These include both funds that are in the private equity market and those that are in the broad BDC space as well.
The most popular in this segment is easily the PowerShares Listed Private Equity ETF (PSP) which has just under $300 million in AUM. This product has a clear focus on private equities although it does also include MLPs and BDCs in its basket (see Do You Need a Private Equity ETF?).
Beyond PSP, there is also a relatively new ETN, the ETRACS Wells Fargo Business Development Company ETN (BDCS) which pays out a solid yield of 9.8%, but is far less popular than PSP. In fact, the market cap is just $20 million for the note, suggesting that investors haven’t embraced this product as a way to access the business development company space.
The presence of multiple funds in the space does probably mean that it will be difficult for ProShares to see success from an asset perspective with its proposed fund. However, their possible private equity ETF could offer up more of a balance between private equity firms and BDCs so it could act as a ‘middle road’ between BDCS and PSP (read Three Financial ETFs that Avoid Big Bank Stocks).
If that is the case, the fund could see some decent inflows, especially if it is able to keep expenses low and dividends high for this proposed product in what is becoming an increasingly in focus corner of the investment world.
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