Northern Trust’s FlexShares launches listed private equity ETF in Europe

Dec 16th, 2021 | By | Category: Equities

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FlexShares, the ETF business of asset manager Northern Trust, has rolled out a new ETF in Europe providing exposure to listed private equity companies globally.

Northern Trust FlexShaes

Northern Trust has launched a listed private equity ETF in Europe.

The FlexShares Listed Private Equity UCITS ETF (FLPE NA) has been listed on Euronext Amsterdam and comes with an expense ratio of 0.40%.

Income is accumulated within the portfolio.

Listed private equity refers to publicly traded companies that invest capital in privately-held enterprises.

Private equity investment strategies typically aim to generate a return by identifying private enterprises with potential and providing them with long-term capital and management expertise in order to help them expand, introduce new products, or restructure.

For investors, alternative asset classes such as listed private equity offer their own unique risk and return profiles and may serve as important portfolio diversifies due to historically low correlations with equities and bonds.

Listed private equity ETFs also enjoy key benefits over traditional private equity exposure including enhanced liquidity and transparency, smaller minimum investment requirements, and the removal of layered fee structures.

Methodology

The fund tracks the Foxberry Listed Private Equity SDG Screened USD Net Total Return Index which starts with a global universe of stocks that have market capitalizations greater than $120m and average daily trading volumes above $400,000.

Index provider Foxberry harnesses the capabilities of impact intelligence platform HolonIQ to screen the universe for companies that fit the private equity theme.

Eligible entities include those that are classified as ‘private equity’ within well-known industry taxonomies and those whose main business activities involve investing in companies or engaging in leveraged buyouts and management buyouts.

HolonIQ then assigns each eligible security with a Private Equity Purity Score, ranking securities on a scale from zero to five.

The methodology removes firms with a Private Equity Purity Score of zero or one, as well as violators of UN Global Compact principles and companies whose operations are deemed to be detrimental to certain UN Sustainable Development Goals.

The remaining constituents are weighted according to the product of their float-adjusted market capitalization and their Private Equity Purity Score while capping any single stock at 9%.

The index is rebalanced on a semi-annual basis.

The index comprises approximately 100 constituents. Stocks from the US presently account for 41.9% of the total index weight with the next-largest country exposures being the UK (13.1%), Canada (12.1%), China (8.2%), and Switzerland (8.1%).

Notable positions include KKR (10.0%), Blackstone (9.6%), Brookfield (9.0%), Prosus (8.2%), Partners Group (7.7%), 3i (5.5%) and Apollo (5.3%). (Data as of 15 December 2021).

The fund will line up against other private equity ETFs in Europe including the $1.2bn iShares Listed Private Equity UCITS ETF (IDPE LN) from BlackRock and the $400m Xtrackers LPX Private Equity Swap UCITS ETF (XLPE LN) from DWS.  These funds come with TERs of 0.75% and 0.70% respectively.

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