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Should You Buy Private Equity ETFs Following Cathie Wood?
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Cathie Wood, famous for the success of Ark Investment’s winning products amid the peak of the pandemic, has created a great fan following so far. Her fans must be interested in knowing what Wood is up to in 2022, when the investing dynamics are changing and her favorite pure-play tech sector is not performing that well due to rising rate worries.
For her fans, we would like to highlight that Ark Invest's Cathie Wood is now tweaking her investment pattern a bit and is trying to invest in "disruptive innovation," through a new interval fund that will target illiquid securities, including those of early- to late-stage private companies that are engaged in the introduction of technologically enabled new products or services. The technology used by these companies "potentially changes the way the world works,", a regulatory filing on Thursday showed, per Reuters.
That new interval fund would broaden the firm's reach to allow it to invest in "disruptive innovation" in securities of firms that might not have a secondary market, the filing said. An interval fund is a closed-end mutual fund that does not trade on an exchange and only allows investors to redeem shares at particular intervals and in limited quantities.
Though Wood is not planning to enter the mutual fund market, her sheer interest in private equities may make some investors interested in tapping that area in the form of ETFs.
Why Private Equity Could be a Winning Concept Now
Private equity firms bring in the much-needed cash to small and medium-sized companies. Private equity is composed of funds and investors that directly invest in private companies, or engage in buyouts of public companies, resulting in the delisting of public equity.
Private equity is a way of catering to the capital of high-net-worth entities. This group acquires rights in high-potential companies lacking cash strength. Along with providing finances, these private-equity firms provide the know-how to run the acquired business in the most profitable manner.
Investors should note that these PE firms offer investors the scope for diversification, not only from a geographic standpoint, but from an investment perspective as well. This is because these firms engage in several strategies—buyouts, growth, etc. — through styles such as acquiring equity stakes or debt positions that are not always accessible to the retail investors.
This asset class is relatively less volatile in nature as compared to public enterprises, as per the private equity council. Private equity also has a low correlation to the broader market but might underperform severely in the global meltdown.
Moreover, investors should note that this asset class is high dividend in nature. With the Fed preparing for a monetary policy tightening process this year and yields on the benchmark 10-year treasury notes rising lately, investors might want to consider making a play on high-yield ETFs.
Notably, as of Feb 4, 2022, yields on the benchmark 10-year treasury notes were 1.93%. So, what could be a better choice than a private equity to see steady return and enjoy yield over 10%. The private equity space is usually available to ultra-wealthy institutional investors but retail investors can play this space via ETFs. Below, we highlight two PE ETFs that may entice investors going forward.
ETFs in Focus
Invesco Global Listed Private Equity ETF (PSP - Free Report)
The underlying Red Rocks Global Listed Private Equity Index includes securities, ADRs and GDRs of 40 to 75 private equity companies, including BDCs, MLPs and other vehicles whose principal business is to invest in, lend capital to or provide services to privately held companies. The fund yields as high as 11.29% annually and its expense ratio is 1.44%.
ProShares Global Listed Private Equity ETF (PEX - Free Report)
The underlying LPX Direct Listed Private Equity Index considers direct private equity investments to be direct investments noted on the balance sheet of the listed private equity company in the equity, mezzanine or debt facility of an underlying private company or investments in limited partnerships managed by the management portion of the listed private equity company. The fund yields 14.46% annually and its expense ratio is 3.41%.
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Should You Buy Private Equity ETFs Following Cathie Wood?
Cathie Wood, famous for the success of Ark Investment’s winning products amid the peak of the pandemic, has created a great fan following so far. Her fans must be interested in knowing what Wood is up to in 2022, when the investing dynamics are changing and her favorite pure-play tech sector is not performing that well due to rising rate worries.
For her fans, we would like to highlight that Ark Invest's Cathie Wood is now tweaking her investment pattern a bit and is trying to invest in "disruptive innovation," through a new interval fund that will target illiquid securities, including those of early- to late-stage private companies that are engaged in the introduction of technologically enabled new products or services. The technology used by these companies "potentially changes the way the world works,", a regulatory filing on Thursday showed, per Reuters.
That new interval fund would broaden the firm's reach to allow it to invest in "disruptive innovation" in securities of firms that might not have a secondary market, the filing said. An interval fund is a closed-end mutual fund that does not trade on an exchange and only allows investors to redeem shares at particular intervals and in limited quantities.
Though Wood is not planning to enter the mutual fund market, her sheer interest in private equities may make some investors interested in tapping that area in the form of ETFs.
Why Private Equity Could be a Winning Concept Now
Private equity firms bring in the much-needed cash to small and medium-sized companies. Private equity is composed of funds and investors that directly invest in private companies, or engage in buyouts of public companies, resulting in the delisting of public equity.
Private equity is a way of catering to the capital of high-net-worth entities. This group acquires rights in high-potential companies lacking cash strength. Along with providing finances, these private-equity firms provide the know-how to run the acquired business in the most profitable manner.
Investors should note that these PE firms offer investors the scope for diversification, not only from a geographic standpoint, but from an investment perspective as well. This is because these firms engage in several strategies—buyouts, growth, etc. — through styles such as acquiring equity stakes or debt positions that are not always accessible to the retail investors.
This asset class is relatively less volatile in nature as compared to public enterprises, as per the private equity council. Private equity also has a low correlation to the broader market but might underperform severely in the global meltdown.
Moreover, investors should note that this asset class is high dividend in nature. With the Fed preparing for a monetary policy tightening process this year and yields on the benchmark 10-year treasury notes rising lately, investors might want to consider making a play on high-yield ETFs.
Notably, as of Feb 4, 2022, yields on the benchmark 10-year treasury notes were 1.93%. So, what could be a better choice than a private equity to see steady return and enjoy yield over 10%. The private equity space is usually available to ultra-wealthy institutional investors but retail investors can play this space via ETFs. Below, we highlight two PE ETFs that may entice investors going forward.
ETFs in Focus
Invesco Global Listed Private Equity ETF (PSP - Free Report)
The underlying Red Rocks Global Listed Private Equity Index includes securities, ADRs and GDRs of 40 to 75 private equity companies, including BDCs, MLPs and other vehicles whose principal business is to invest in, lend capital to or provide services to privately held companies. The fund yields as high as 11.29% annually and its expense ratio is 1.44%.
ProShares Global Listed Private Equity ETF (PEX - Free Report)
The underlying LPX Direct Listed Private Equity Index considers direct private equity investments to be direct investments noted on the balance sheet of the listed private equity company in the equity, mezzanine or debt facility of an underlying private company or investments in limited partnerships managed by the management portion of the listed private equity company. The fund yields 14.46% annually and its expense ratio is 3.41%.