One of the great things about exchange traded funds (ETFs) is the way that they allow small investors to get access to asset classes that used to only be available to the very wealthy.
It is really not that many years ago when being able to buy small amounts of some offshore bonds or even some US stock exposure was quite difficult for an Australian investor.
If you were lucky your broker may have allowed you to buy and sell US listed stocks – for a hefty fee – but getting some diversification was more difficult so the whole exercise wasn’t really worth it for small amounts.
The world is your oyster
ETFs have changed that, allowing instant exposure to offshore indices, bonds and even more boutique themed investments such as cyber security, cryptocurrency companies or video gaming.
That theme of opening up new markets for small investors has happened again with VanEck soon to list an ETF giving investors exposure to private equity investments.
There are several really attractive things about private equity for the small investor.
It is not highly correlated to other asset classes such as shares or bonds, the returns are on average quite high and many of the opportunities it represents such as start-ups, buy-outs and project financing are difficult to replicate.
Private equity covers 98% of companies
However, the real attraction of private equity is that only about 2% of companies in the world are public, so there is literally an enormous pool of investment opportunities that are very difficult to access.
The VanEck Global Listed Private Equity ETF (ASX: GPEQ) will be the first Australian private equity ETF and will track the LPX50 Listed Private Equity Index.
This index is designed to represent the global performance of the 50 most highly capitalised and liquid listed direct, indirect and private equity managers and has a 10-year Australian dollar performance average of 20.9% a year.
VanEck chief executive officer for Asia Pacific, Arian Neiron, said the new ETF should provide private equity exposure to investors who have traditionally not been able to access the asset class at all.
“Private equity offers investors long-term historical outperformance over public markets, yet traditionally it has only been accessible by institutional and ultra-high-net-worth investors,’’ Mr Neiron said.
“GPEQ changes that and allows all investors to participate in private equity investments for the first time through a single trade on the ASX.”
Low correlation to equities and access to mega-trends
“As an alternative investment, private equity is important for investor’s portfolios as it displays a low correlation with equities and bonds as well as offering attractive risk and return characteristics,” Mr Neiron said.
He said private equity has provided companies with capital and industry expertise to help them weather the COVID-19 crisis and plays an important role in helping small enterprises grow and generate strong returns.
“GPEQ will also enable investors to participate in mega trends such as the huge explosion in technology companies developing breakthrough technologies.”
ETF market keeps growing fast
The arrival of new ETFs and the eager embrace of many millennial investors has continued to turbocharge the growth of the sector in Australia.
Net flows in ETFs hit $2.4 billion in October, more than offsetting asset value declines in one of the tougher months on share markets.
BetaShares’ Australian ETF Review interestingly showed that in October the top ETF by inflows was BetaShares’ Australian High Interest Cash ($360 million), followed by iShares Core S&P/ASX 200 ($188 million) and Vanguard Australian Shares ($175 million).
Next came the Vanguard MSCI Index International Shares ($95 million) and BetaShares Australia 200 ($88 million).
That possibly showed that some investors were parking some profits in cash while others were perhaps taking advantage of falling prices to get set on international and local indices.
International equities the main destination
Unsurprisingly given that Australian equities make up such a small slice of world markets, international equities had the most inflows at $904 million, followed by Australian equities at $621 million.
There were also high levels of flows into cash and fixed income at $345 million and $304 million respectively, while currency ETFs recorded the highest outflows at $5.5 million.
Total assets under management for ETFs is now $126.9 billion, up 1.33% for the month and an impressive 72.1% for the past year.
There were some really good performers in October, led by ETF Securities’ Hydrogen ETF (23.8%), ETF Securities’ Ultra Long Nasdaq 100 Hedge Fund (18.4%), BetaShares Geared US Equity Fund Currency Hedged (15%), VanEck Vectors Global Clean Energy (14.6%) and BetaShares Crude Oil Index (12%).