Alibaba’s much ballyhooed initial public offering is just one day away and, to put things mildly, the Chinese e-commerce firm’s debut as a public company could prove to be a game-changer for several highly focused exchange traded funds.
On that list is the Renaissance IPO ETF (NYSEArca: IPO). IPO, which is 11 months old, has been home to such widely followed new stocks as Facebook (NasdaqGS: FB) in its brief time on the market. With Facebook being over two years removed from its public debut, IPO’s top spot is currently an almost 11% weighting to Twitter.
Expect Alibaba to become IPO’s largest holding and quickly ascend to that spot. In an interview with ETF Trends from the Morningstar Conference in Chicago, Renaissance Capital Principal Kathleen Smith said based on Alibaba’s expected market value, now forecast to be nearly $22 billion at Friday’s open and the size of Twitter, it is likely Jack Ma’s company makes a big entrance into IPO, immediately becoming the ETF’s largest position. [What Alibaba’s Valuation Means for ETFs]
IPO’s underlying index, the Renaissance IPO Index (IPOUSA), gives the ETF the flexibility to add stocks after just five trading days. While a rival product’s index provider has since said it will add Alibaba after Friday’s close, there are advantages to IPO waiting five days before adding hot IPOs. [An ETF That Will Fast Track Alibaba]
“Adding a stock after its fifth trading day allows for better price discovery of an IPO,” said Smith. With that, investors can be assured IPO will feature Alibaba among its holdings at the open of U.S. markets on Friday Sept. 26.
Expectations of Alibaba’s rapid ascent within IPO is bolstered by the following factoid: Nearly all IPOs over the past 15 years valued at over $1 billion have risen an average of 12% on the first trading day, according to Smith.