IPO ETFs Red Hot, Can the Rally Last?

The IPO market remains super solid this year. There have been 168 IPOs priced this year, up 31.3% from last year, per renaissancecapital. Total proceeds raised were $57.0 billion this year, up 36.0% from last year.About 210 IPOs were filed this year, marking an increase of 19.3% from last year.

There have been 142 SPAC IPOs this year, with healthcare taking half the total volume. Some of these newly public biotech companies are working on coronavirus vaccines and therapeutics and thus have been hugely popular with investors.

The recent resurgence in blank check and Special Purchase Acquisition Companies (SPAC) has been one of the main reasons for the rally in IPO ETFs. The COVID-19 situation has made the Blank Check route more appealing for going public as virtual road shows are less effective. The route is also less complicated and pricey. Big shot investors like Bill Ackman and Michael Klein have raised billions through their SPACs this year.

Among the recently priced IPOs, iHuman IH (up 106.5%), Snowflake SNOW (up 102.1%), Bentley Systems BSY (up 81.8%) and Amwell (AMWL) (up 97.4%) are some of the hot IPOs that have seen a huge surge in returns from IPO.

What Lies Ahead?

The IPO pipeline is still solid. Three IPOs and one SPAC are expected to raise $1.6 billion this week, per renaissancecapital. McAfee MCFE, Datto (MSP), Guild Holdings (GHLD), Helix Acquisition (HLXA) and Gatos Silver (GATO) are some of the IPOs that are in the pipeline right now. Nine IPOs and five SPACs went public this past week.

However, as we are nearing the election, new IPO filing activity is likely to see a cooling momentum. SPAC activity however maintained the winning momentum with nine submitting initial filings, per renaissancecapital. However, we believe whoever wins, the IPO momentum is less likely to cool down completely.

Against this backdrop, investors can bet on the following ETFs.

Defiance NextGen SPAC IPO ETF (SPAK)

The underlying Indxx SPAC & NextGen IPO Index of the fund SPAK tracks the performance of the common stock of newly listed Special Purpose Acquisition Companies (SPACs), ex-warrants, and IPOs derived from Acquisition Companies over the preceding 36 months.

An 80% weighting is attached to IPO companies derived from SPACs and 20% is allocated to the common stocks of newly listed Special Purpose Acquisition Companies. The fund is heavy on Draftkings (15.0%) and Clarivate (12.54%). The fund charges 45 bps in fees. In total, the fund currently has 36 holdings.

Renaissance IPO ETF (IPO)

The underlying Renaissance IPO Index is a portfolio of newly U.S.-listed IPOs of companies whose unseasoned equities are under-represented in core U.S. equity indices. Notably, IPOs that meet liquidity & operational screens are included on the index at the end of the fifth day of trading, or upon quarterly reviews, weighted by tradable float, capped at 10% and removed after two years.

The fund charges 60 bps in fees. Zoom Video (11.33%), Uber Technologies (7.21%) and CrowdStrike Holdings (6.06%) are the top holdings of the fund. The fund is up 30.5% in the past 13 weeks.

Renaissance International IPO ETF (IPOS)

The underlying Renaissance International IPO Index is a stock market index based upon a portfolio of non-U.S.-listed newly public companies, prior to their inclusion in global core equity portfolios. The fund charges 80 bps in fees. Meituan-Dianping (10.84%), SoftBank (9.27%) and Innovent Biologics (7.75%) are the top three holdings of the fund. The fund charges 80 bps in fees. It has gained 11.3% in the past 13 weeks.

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