The PowerShares Global Listed PrivateEquity Portfolio: Risk and Performance Analysis

Abstract

The authors examine the risk and return characteristics of the PowerShares Global Listed Private Equity Portfolio (PSP) and benchmark its return to several domestic and international indices. They estimate annual Sharpe ratios for each index and the PSP to determine which offers the highest risk-adjusted return. In terms of raw non-risk-adjusted returns, the PSP is the worst-performing index in the study. When risk is considered through the use of the Sharpe ratio, the PSP underperforms most of the U.S.-based domestic indices; marginally outperforming only the S&amp;P 500 Index. The authors also examine the coefficient of determination (R2) of the PSP using several regressors. They find that the broad U.S. market explains most of the variation in the returns of the PSP. The authors also show that once U.S. returns are controlled for, international factors explain less than 1% of incremental variation in the PSP’s returns. This finding is of particular interest because more than 59% of the PSP’s holdings are domiciled outside the United States. <b>TOPICS:</b>Private equity, exchange-traded funds and applications, statistical methods, performance measurement