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Buyout Bust? Steer Clear of Private-Equity ETF

Last fall I wrote an article about the then-newly listed PowerShares Listed Private Equity Portfolio (PSP) that tracks the Red Rocks Listed Private Equity Index.

I was generally skeptical about whether a fund with a bunch of different companies specializing in different types of deals could offer returns that capture a private-equity effect.

My concern was that the specialties of each of the holdings would be blended away, and the result would look a lot like the market.

Private equity was a hot area last fall and has become even hotter since as the pace of new deals seems to have accelerated, so I felt it would be worth revisiting this area to see whether my skepticism was well-founded.

Private Equity vs. the Market

As the first chart shows, PSP has clearly outperformed the S&P 500 and the Russell 2000, but I'm not sure that the incremental outperformance has been a bonanza of private-equity riches.

PSP is heaviest in mid-cap value stocks.

Using iShares Russell Mid-Cap Value Index Fund (IWS) as a benchmark (second chart), you can see that PSP has lagged slightly since its inception.

(Please see charts below.)

Click here for larger image.

Click here for larger image.

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ALD $42.84 -0.86%
PHO $22.24 0.63%
PSP $10.92 0.18%
IWS $71.54 0.06%
ACAS $15.54 2.10%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.57 +1.70 0.08%
NASDAQ 5,128.6240 +12.4810 0.24%

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