The euphoria of initial public offering may have slowed in the U.S., but not the enthusiasm for filing new ETFs targeting the IPOs. This is evident from the recent filing of a U.S. IPO ETF by Pointbreak ETF Trust.
The U.S. IPO space saw no activity in the first month of January and since then exhibited very lesser actions than the same period of last year. However, the scenario turned a corner lately with activities in May peaking since October 2015 . Also, things may shore up in the coming days once the U.S. market shrugs off volatility and marches ahead.
Below we highlight the newly filed Pointbreak IPO Index Fund (PBIQ) in detail:
The fund looks to track the FactSet US IPO index . FactSet Research Systems built the underlying index by following steps. First, it identifies the space of appropriate U.S. companies issuing common stocks through an IPO during the last three years or as a result of a corporate spin-off. Then it chooses the 60 largest companies and settles on the relative weighting of each company.
The likely constituents must have market capitalization of at least $250 million and serve liquidity requirements of a 30-day average daily trading volume of at least 200,000 shares or a 30-day average trading value of minimum $1 million. The expense ratio is yet to be disclosed.
How Does it Fit in a Portfolio?
This proposed product could be an interesting choice for investors seeking exposure to IPOs in the U.S. market. Though the U.S. IPO market slowed down lately, this was mainly due to the market upheaval which kept companies from indulging in IPOs, as per FactSet .
Moreover, such a calm period resulted in pent-up demand for IPOs or a pile of private companies seeking to go public, as per renaissancecapital.com . And once the market gains momentum, the IPO mood should charge up. Plus, an improving U.S. economy should help in driving the momentum (see all Total Market (U.S.) ETFs here).
Can it Succeed?
There are at present two products operating in the market on the U.S. IPO theme. These are First Trust US IPO ETF ( FPX ) and Renaissance IPO ETF ( IPO ). FPX provides exposure to the booming U.S. IPO market by tracking the IPOX-100 U.S. Index. The fund has accumulated $572.7 million in AUM since it debuted in 2006 (read: Another Blowout Quarter for Facebook: ETFs to Ride On ).
On the other hand, IPO is a relatively new entrant in the space and has attracted $13.7 million in its asset base since its launch in late 2013. Both ETFs have an expense ratio of 0.60%. So, the proposed fund needs to charge competitively to attract investor attention (read: 5 Low-Cost ETFs Poised for Long-Term Wins ).
Although underlying indices and the style of portfolio construction varies from one product to other, the IPO ETF space is gradually getting crowded. Investors should note that the fund IPO lags way behind FPX in terms of assets despite hailing from the same genre. So, PBIQ, if ever approved, should offer investors a better strategy and expense ratio to make a killing.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.