Amid the recent downturn in broader markets, a blockbuster stock debut has made headlines: cloud-based data warehousing company Snowflake (NYSE :).
While the company has priced its initial public offering (IPO) at $ 120 a share, the stock debuted at more than double that figure, opening at $ 245 a share on September 16. Demand was so strong that the stock hit $ 319 on the first full day of trading. Although the euphoria has cooled down a bit, SNOW shares are still not cheap. They closed at $ 229 yesterday.
The price action generally seen during the first few weeks after an IPO does not necessarily mean that a stock will have a strong long-term track record. Many factors come into play, including investor risk appetite, which has been plentiful since early spring, despite current market dynamics.
Other notable IPOs of 2020 include biopharmaceutical company CureVac (NASDAQ :), DevOps provider Jfrog (NASDAQ :), insurance company Lemonade (NYSE :), and used car e-commerce platform. 39; s Vroom (NASDAQ :).
The IPO calendar and market rumor mill point to other highly anticipated public offerings in the months ahead, such as vacation rental marketplace Airbnb, digital currency exchange Coinbase, ready-to-eat delivery service DoorDash, data analysis software company Palantir Technologies, financial trading app Robinhood and deep discount, e-commerce platform Wish.
Regardless of the hype surrounding a company, recent IPOs still have a lot to prove to shareholders and the momentum can indeed be unpredictable. In addition to researching individual companies, exchange-traded funds (ETFs) can facilitate investment IPOs while reducing the risk of owning just one stock.
Below are 2 ETFs worth considering. Each focuses on liquid IPOs as well as spin-offs and equity carve-outs from larger companies:
1. Renaissance IPO ETF
Current Price: $ 50, 38
52 Week Range: $ 20.37 – $ 52.52
Dividend Yield: 0.26%
Expense Ratio: 0.60% per year or $ 60 with an investment of $ 10,000
The Renaissance IPO ETF (NYSE 🙂 provides exposure to a range of companies that have recently completed an initial public offering and are listed on a US stock exchange. IPO, which includes 43 companies, follows the.
The index includes companies that meet various liquidity and operational screens at the end of their fifth trading day. After 500 trading days in the public markets, the index removes them. Business reviews are conducted quarterly.
The most important sectors (by weighting) are technology (46.1%), healthcare (19.6%), consumer discretionary (16.25), communication services (6.2%) and consumer staples (5, 0 %%)
The top ten holdings make up just over 57% of total net assets, which are $ 200 million. The top five companies include Zoom Video Communications (NASDAQ :), ride-sharing app Uber (NYSE :), third-party ecommerce platform Pinduoduo (NASDAQ :), clinical-stage biotech Moderna (NASDAQ :), and monitoring from cloud app software service Datadog (NASDAQ :).
Year-to-date, the fund is up nearly 62%. The increase in the shares of ZM and MRNA has played a significant role as their weights are 10.6% and 6.1% respectively. So far in the year, the Zoom share increased by 588% and the Moderna share by 254%.
In case of profit taking in both shares, IPO is also likely to fall significantly. Ideally, we would wait for a possible drop to the USD 45 level or even lower before investing for the long term. The hot IPO market may need to cool down before another jump in the fund can begin.
2. First Trust International Equity Opportunities ETF
Current Price: $ 56.54
52 week range: $ 30.13- $ 60.77
Dividend Yield: 0.34%
Expense ratio: 0.70%
The First Trust International Equity Opportunities ETF (NASDAQ 🙂 provides exposure to a range of non-US liquid companies that have recently had IPOs, as well as spin-offs in both emerging and developed countries. FPXI, which has 51 holdings, tracks the IPOX International index.
The index includes companies that pass various investment screens at the end of their sixth trading day and are deleted after 1,000 trading days. The fund is rebalanced and rebalanced every quarter.
The top sector allocation is Consumer Discretionary (25.09%), followed by Healthcare (19.66%), Information Technology (19.54%), Communication Services (11.44%), Industry (6.17%) ), utilities (5.53%), consumer staples (5.21%), financial services (4.14%) and energy (3.22).
The ten largest holdings make up more than 38% of FPXI's net assets. about $ 310 million. The top five companies in the fund are online payment service provider Adyen (OTC :), Chinese shopping platform Meituan Dianping (OTC :), internet platform provider Sea (NYSE :), biological technology platform provider Wuxi Biologics (HK 🙂 and biotechnology company Genmab (NASDAQ 🙂 .
In terms of country allocations, China leads the list with 30.6%. Next in line are the Netherlands (9.61%), Brazil (7.72%), Sweden (7.58%) and Denmark (7.38%).
So far this year, the fund is up more than 40%. It even hit a record high of $ 60.77 on September 2. Long-term investors can explore the fund further with a view to buying on dips.
Bottom Line
By 2020 the IPO market appears to have entered the market. roaring back. Last week, Silicon Valley's Snowflake became the largest software IPO ever. Other recently listed stocks, such as CVAC, MRNA and ZM, have also made headlines.
Long-term investors interested in participating in the growth of such newly listed companies should look beyond the present day. hype and study their long-term prospects.
In addition to the two exchange traded funds discussed, there are a number of others that investors will want to keep on their radar screen:
First Trust IPOX Europe Equity Opportunities ETF (NASDAQ: FPXE)
First Trust US Equity Opportunities ETF (NYSE 🙂
Invesco S&P Spin-Off ETF (NYSE 🙂
Renaissance International IPO ETF (NYSE 🙂
