In 2019 the Initial Public Offering market has been on fire. We have seen huge pops in share prices from some of the big-name companies like Uber, Levi Strauss, Lyft, Pinterest, Zoom Video, CrowdStrike, Chewy, and of course Beyond Meat. And actually, Beyond Meat was the “biggest popping U.S. IPO since 2000”.
The vast number of fast-growing companies that have hit the market in 2019 and the promise that investors see from these stocks has caused some investors to take on more risk than they should when they rush in after the large pops and buy up shares of the already somewhat inflated stock.
This leads to the biggest challenge of investing in newly public companies, which is first determining which ones are the next Pet.coms and which ones could go on to become the next Amazon.com. The risk is extremely high with recently IPO’d stocks, and especially ones that have seen some of the increases we witnessed in the first half of the year because in most cases profits are still none existent. But a few different Exchange Traded Funds are available which will give you exposure to these hot new IPOs, but minimize your overall risk.
Instead of cherry-picking which recent IPO’d stock or stocks you think can become a monster winner from here, you can buy all of them and feel good knowing you will have some skin in the game. So, let's take a look at which ETFs you may want to research further.
First, we have the Renaissance IPO ETF (IPO) and the First Trust U.S. Equity Opportunities ETF (FPX). IPO tracks a market-cap weighted index of recent U.S. listed IPOs and acquires those stocks within 90- days of them going public and sells after holding the stock for two years. Year-to-date IPO is up more than 44%, but just 8.8% over the last year. Currently, the fund holds 65 positions, with the top ten making up 47% of the fund. It also has a reasonable expense ratio of 0.60% with more than $61 million in assets under management.
FPX, on the other hand, has 101 positions since it tracks a market-cap weighted index of the 100 largest U.S. IPOs over their first 1,000 trading days. FPX is up 31.5% in 2019 and 11% over the last year. FPX has a marginally lower expense ratio at 0.59% but substantially more in assets under management at $1.3 billion. Furthermore, its top ten holdings make up 35% of the fund, despite its largest holding, PayPal, representing more than 8.4%.
Next, you could look at the Renaissance International IPO ETF (IPOS) and the First Trust International Equity Opportunities ETF (FPXI), which are both international funds. IPOS tracks a cap-weighted index of recent international IPOs and adds those stocks to its holdings within 90 days of the company going public. Currently, it has 62 positions and charges 0.80% expense ratio. It is up more than 14% year-to-date but off by a little more than 1% over the last year.
FPXI has just 51 positions as it tracks an index that holds the 50 largest international IPOs over the last 1,000 trading days. FPXI has an expense ratio of 0.70%, $28 million in assets under management, and a yield of 1.12%.
The international IPOs are a little riskier even than the U.S. listed one since the reporting standards for other countries around the world are much laxer when compared to those in the U.S. With that being said, thus far in 2019 both IPOS and FPXI are up 14% and 25% respectively.
And finally, we have the First Trust IPOX Europe Equity Opportunities ETF (FPXE) which tracks a market-cap-weighted index of the 100 largest European IPOs over their first 1,000 trading days. This fund is essentially the European version of the FPX. FPXE though has an expense ratio of 0.70% and just $2 million in assets under management. FPXE has risen more than 25% in 2019.
Investing in IPOs is a risky venture and certainly not for the faint at heart. However, IPO ETF’s can help lower the risk, but that is not to say they will ever fully eliminate it. Just something to keep in mind before you plow tons of money into these exciting ETF’s.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold any of the ETFs listed at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
