Looking To Add A Private Equity Stake To Your Portfolio? 2 ETFs Worth Holding

 | Dec 07, 2020 05:09

Well-run private equity firms are currently in a strong position to boost the value of their investments. The main reason: COVID-19 has opened opportunities for many such firms to snap up assets at discounted or even distressed prices compared to a year ago.h2 What Is Private Equity?/h2

Private equity can be defined as risk capital provided outside publicly-quoted markets. Private equity firms invest in established private businesses and take an equity stake—usually over 50%. They also typically participate in the daily management of their investments with the goal of making capital gains or creating value by selling or floating those firms in addition to annual dividend returns.

Unlike venture capital, whose focus is primarily on startups, especially in high-growth areas such as the technology sector, private equity firms tend to invest in well-establish companies. Other differences between these two types of firms would be outside the scope of this article.

In 2018, there was close to $350 billion in global private equity funds.

For investors unsure about which firms will create the most shareholder value in the long-run, exchange-traded funds (ETFs) can offer exposure to a range of firms. However, remember these funds typically have annual expense ratios.

With that information in mind, here are two ETFs that focus on private equity businesses:

h2 1. Invesco Global Listed Private Equity ETF/h2
  • Current Price: $13.02
  • 52-Week Range: $6.55-$13.18
  • Dividend Yield: 6.25%
  • Expense Ratio: 1.59%

The Invesco Global Listed Private Equity ETF (NYSE:PSP) provides access to private equity companies, including publicly-listed firms, business development companies, master limited partnerships as well as other businesses that invest in or lend capital to privately-held companies.

We previously covered bussiness development companies.}} In the US, master limited partnerships are publicly-traded partnerships that tend to offer high dividends (or cash distributions). By law, they generate over 90% of their income from qualifying operations that are usually in commodities, natural resources, or real estate. (We plan to cover ETFs that focus on master limited partnerships in a separate article).