What’s the Buzz Behind DXYZ?

DXYZ is not an ETF

Just to make things clear, DXYZ is not an ETF.

So, what is it?

DXYZ is a closed-end fund (CEF) managed by Destiny XYZ Inc. designed to open up access to high-value, private technology companies for more people. Unlike other investment vehicles like ETFs and mutual funds, a CEF like DXYZ is launched through an IPO and then closed to new capital.

It trades on an exchange, much like stocks, and its price is influenced by market demand—not just by the net asset value of the assets it holds. This setup can lead to prices that are either above or below the real value of the underlying assets, unlike ETFs and mutual funds, which continuously align prices with their net asset values.

What Sets DXYZ Apart?

DXYZ stands out because it seeks to invest in the top venture-backed private technology firms—companies that are usually out of reach for the average investor. Some of the big names already included in its portfolio are SpaceX, OpenAI, Epic Games, Discord, Superhuman, and Stripe. Although the goal is to include 100 companies, the fund currently holds 23, each carefully selected by top U.S. institutional investors for their maturity and stability.

Why the Buzz Around DXYZ

The excitement surrounding DXYZ has been fueled in part by the fund's appeal as an opportunity to invest in private tech giants, along with its boosted popularity on platforms like Reddit's renowned meme stock hub, WallStreetBets.

DXYZ's stock surged from $9 to $100 within a mere two weeks post-IPO and is now trading at a market capitalization of $550 million (after briefly peaking over a billion) — nearly 10 times its net asset value of approximately $54.3 million.

This has prompted talks on whether such high valuations can last and whether this reflects an overly speculative approach.

Gaining Exposure to Private Markets with ETFs for U.S. Investors.

With DXYZ’s wild swings, U.S. investors who are interested in gaining exposure, albeit indirectly, to private equity markets can explore other options through ETFs, such as the PSP by Invesco and PEX by ProShares.

Invesco Global Listed Private Equity ETF (PSP)

The Invesco Global Listed Private Equity ETF (PSP) is a fund that tracks the Red Rocks Global Listed Private Equity Index and provides exposure to private equity companies that invest in or provide services to other privately held companies. Among the fund’s 69 holdings are 3i Group PLC, EQT AB, KKR & Co, TPG Inc, Eurazeo SE, and Blackstone.

The fund is listed on the NYSE Arca and has a total expense ratio of 1.06%. It has been trading since 2006 and currently holds assets worth $240 million. In the last year, up to March 31st, 2024, the fund has generated a return of 37%.

ProShares Global Listed Private Equity ETF (PEX)

The ProShares Global Listed Private Equity ETF (PEX) offers investors an alternative route to tap into private equity markets by mirroring the PX Direct Listed Private Equity Index. Despite being active since 2013, PEX remains a smaller fund compared to PSP, managing less than $10 million in assets and carrying a higher expense ratio of 2.79%.

Its key holdings encompass 3i Group PLC, Ares Capital Corp, KKR, and Onex Corporation. PEX has delivered a return of 24% over the past year (as of April 9th, 2024).

Options for European Investors

European investors also have access to similar funds in the region, such as the iShares Listed Private Equity UCITS ETF (IDPE), Xtrackers LPX Private Equity Swap UCITS ETF (DX2D), and FlexShares Listed Private Equity UCITS ETF (FLPE).

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.