After a lull, the U.S. IPO Market is jazzing up. So far this year, there has been a visible slowdown in IPO activity (down 54% from last year according to Renaissance Capital). The U.S. IPO space saw no activity in the first month of January and exhibited sluggishness afterward unlike the same period of last year.
However, the scenario turned a corner lately with activities in May peaking since October 2015 . Things may shore up in the coming days once the U.S. market shrugs off volatility and marches ahead. This is especially true with June historically being one of the busiest months for IPOs . As of now, the second quarter has seen about 25 IPOs , compared with just nine in the first quarter, according to Dealogic.
Though U.S. IPOs slowed down, this was mainly due to market upheaval and overvaluation concerns that kept companies from indulging in IPOs. With the economy taking root after the softness seen earlier this year, companies might intend to launch deals generously.
And once the market gains momentum, the IPO mood should also charge up. Plus, an improving U.S. economy, as being witnessed now, should help in driving the momentum (see all Total Market (U.S.) ETFs here).
Success Story of Recent IPOs
Shares of foodservice distributor US Foods (USFD) jumped over 8% on the first day of trading on May 26, 2016. This turned as the second-biggest IPO with gross proceeds about $ 1.02 billion in a soft year like 2016. Gympsum Supply and Management (GMS), a wallboard and ceilings systems company also added over 4.3% on its trading debut on May 26.
Reata Pharmaceuticals (RETA) surged over 18.8% on the first day of public trading on May 26. PhaseRx Inc. (PZRX), a preclinical biopharmaceutical company made its debut on May 18 and gained about 10.6% since then (as of May 26, 2016), showing investors' strong appetite for hot IPOs.
Not all are seeing equal success definitely; there are companies like Cotiviti Holdings (COTV) which crashed on debut, losing about 10%. There is Merus B.V. (MRUS), a clinical-stage immuno-oncology company, which lost about 16.8% (as of May 26, 2016) since its entry into the market on May 19. There are several other companies which tasted moderate success in the meantime.
All in all, Tom Farley , president of NYSE Group Inc., is optimistic on June activity.
Most recently, technology company Twilio and regional bank Paragon Commercial filed for IPOs and over 100 companies are waiting to go public. In short, with a pretty lengthy queue, the second half of 2016 should be quite different from the dull first half.
While investing in many IPOs at the same time could be difficult, investors could easily tap the IPO resurgence with the two ETFs discussed below:
First Trust US IPO Index Fund (FPX)
This ETF provides exposure to the booming U.S. IPO market by tracking the IPOX-100 U.S. Index. The index measures the average performance of U.S. IPOs during the first 1000 trading days. Currently, three firms - Facebook, Kraft Heinz Company and AbbVie - dominate the fund's returns,
The product has a nice mix of sectors, with the top four being information technology, health care, consumer discretionary and consumer staples. The fund has accumulated $586.3 million in AUM and sees volume of about 60,000 shares per day. It charges 60 bps in fees a year. .
Renaissance IPO ETF (IPO )
This ETF follows the Renaissance IPO Index.Currently, the product holds 64 securities in its basket with the largest allocation going to Alibaba (9.92%), Synchronyfinancial (9.8%) and Citizens Financial Group (8.29%) (read: Investors Cheer Alibaba Revenue Growth: ETFs in Focus ).
From a sector look, technology stocks make up for one-fourth share while financials, health care and consumer discretionary round off the next three spots with double-digit exposure. The product has amassed $13.9 million in its asset base and sees light volume of under 5,000 shares. It charges 60 bps in annual fees.