Is Fall Awaiting a Strong IPO Market? ETFs in Focus

After a lull lasting for about 18 months, the U.S. IPO market is set to pick up speed in the coming fall. Growth stocks have staged a strong rally in 2023, buoyed by decreased inflation and an excitement over AI progress. This has placed the Renaissance IPO Index (IPOUSA) ahead of the Nasdaq this year, in terms of performance.

This year’s noteworthy IPOs have garnered positive reception, encompassing both defensive strategies and consumer-focused entities with substantial growth potential. In August, approximately 16 companies initiated the filing process. Although this tally, which encompasses several micro-cap enterprises, remains below the ten-year average of 22 filings, it serves as an obvious indication of an IPO market recovery.

Inside the Previous Activity

In the second quarter of 2023, 23 IPOs raised a total of $6.6 billion. While deal count held steady from the prior-year period, quarterly proceeds were the highest in six quarters, even without J&J spin-off Kenvue’s $3.8 billion IPO, per Renaissance Capital.

Overall, there have been 67 IPOs priced this year, up 28.8% year over year. Total proceeds raised were $9.9 billion this year, up 122.6% year over year. There have been 109 IPOs filed this year, up 19.8% year over year, per Renaissance Capital.

Renaissance IPO ETF IPO is up 33.6% this year while Renaissance International IPO ETF IPOS has lost about 13.4%. The S&P 500 is up 17.5% this year (as of Sep 1, 2023).

Signs of Strength in the Current Market?

This year’s IPO market is expected to rebound, with 30-50 more IPOs expected. The year is on track to reach roughly 110 IPOs raising $22 billion in proceeds. Certain IPOs such as restaurant chain Cava CAVA, beauty and wellness company Oddity ODD and Vietnamese EV maker VinFast VFS surged on the debut this year. Recent filings include Arm, Instacart, Klaviyo, and Biotechs. Renaissance Capital’s shadow backlog features possible fall IPOs from Birkenstock, Waystar, and SeatGeek.

John Chirico, Citi's U.S. head of banking, capital markets, and advisory, anticipates a substantial uptick in the IPO market in 2024, with promising opportunities toward the end of the year, as quoted on Yahoo Finance.

Mid-Sized IPOs Will Likely Rule Ahead

Stability of the companies offer the strength in the IPO space. Chirico also emphasizes the significance and ruling power of mid-sized IPOs next year, which can result in companies valued at $2 billion to $3 billion. However, he predicts that a steady state level in the IPO market can be achieved in the first half of the following year.  Micro-cap listings should continue as well. Of the 96 companies that have submitted new or updated IPO filings in the past 90 days, only 14 are on file to raise at least $50 million.

Not a Repetition of 2021 Boom Likely

The year 2021 witnessed an unprecedented IPO boom with 2,388 IPOs raising $453.3 billion, according to EY data, quoted on Yahoo. While this surge is seen unsustainable, stable markets in years like 2018 and 2019 are expected to be repeated in 2024.

Any Hurdles?

While IPO activity is not absent in the current year, Chirico highlights the expectation for a prosperous IPO market in 2024 is rooted in the anticipation of a more favorable backdrop. We believe that the ongoing banking crisis may cause the recovery later-than-expected. We also believe that the renewed rate hike worries could be a drag to the IPO market.

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Renaissance IPO ETF (IPO): ETF Research Reports

Renaissance International IPO ETF (IPOS): ETF Research Reports

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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