Renaissance Capital, the Connecticut-based investment firm behind the Global IPO Plus Aftermarket Fund (IPOSX) mutual fund, will introduce the Renaissance IPO ETF (NYSEArca: IPO) on Wednesday.
The new ETF will be benchmarked to an in-house index, the Renaissance IPO Index, which is designed in conjunction with index provider FTSE. “The FTSE Renaissance Global IPO Index Series provides total global IPO market coverage and is composed of regional (e.g. Asia Pacific), country-level (e.g. US) and strategic subsets (e.g. ex-US, Emerging Markets, capped and investable versions),” according to the Renaissance web site.
IPO will compete directly with the First Trust US IPO Index Fund (NYSEArca: FPX), which is seven and a half years old and has $184.7 million in assets under management. FPX has had another banner year, gaining 31.4%, but there are key differences between it and FPX.
Investors should note how FPX does business because in the case of this ETF, IPO does not necessarily mean brand new stocks. Said another way, a hot IPO set to debut on October 20 could trade for months before being included in FPX’s index. Additionally, FPX is home to plenty of spin-offs and companies that were taken private in private equity buyouts only to go public again a few years later. [Another Market Beating Niche ETF]
In some cases, IPO does not wait long periods of time before adding new offerings. For example, oil and gad exploration and production firm Antero Resources (NYSEArca: AR), which went public last week, has already been added to IPO’s index.
As such, IPO could be one of the first ETFs to added Twitter following the social media company’s much ballyhooed initial public offering. [Twitter IPO Could Lift Social Media ETF]
Like FPX, IPO caps individual holdings at 10%, but components leave IPO after two years. FPX holds stocks for up to 1,000 days after they go public. Top-five holdings in the FTSE Renaissance US IPO Index currently include Facebook (NasdaqGM: FB), Zoetis (NYSE: ZTS) and Michael Kors (NYSE: KORS), according to Renaissance Capital.
IPO’s underlying index was up nearly 48% year-to-date as of late last week.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.