Initial public offerings attracted record attention in 2020, and investors can consider an IPO-themed exchange traded fund to keep up with 2021 momentum.
After a brief pause from the coronavirus pandemic, IPO activity resumed in late May after the Federal Reserve signaled it would take aggressive steps to prop up the economy, with a number of stocks that debuted around that period taking off, the Wall Street Journal reports.
According to Dealogic data, newly listed companies raised $167.2 billion through 454 offerings on U.S. exchanges for the year ended Dec. 24, with $67.3 billion raised in the fourth quarter alone, compared to the prior full-year record of $107.9 billion during the dot-com boom in 1999.
The IPO market has been supported by a surprising uptick in special-purpose acquisition companies, or SPACs – identities that raise money through listings and then target businesses to merge with. They are considered a bet that the business will generate quick returns, reflecting the increased risk appetite that fueled new issues and the bull market.
Colin Stewart, Morgan Stanley’s global head of technology equity capital markets, argued that investors have “limitless interest” in specific stocks, notably those that resonated with retail investors. “The moves and valuations of certain stocks are not necessarily based on business fundamentals,” he told the WSJ.
The trend in going public may still have legs. John Chirico, co-head of North American banking, capital markets and advisory at Citigroup Inc., believed companies “see the benefit and value of being public like they never have before.”
As IPO activity rebounds, ETF investors can also take advantage of the potential growth opportunity through a targeted IPO-related ETF, the Renaissance IPO ETF (NYSEArca: IPO). IPO seeks to replicate the price and yield performance of the Renaissance IPO Index, which is a portfolio of companies that have recently completed an initial public offering (“IPO”) and are listed on a U.S. exchange.
Another fund worth looking at is the First Trust US Equity Opportunities ETF (NYSEArca: FPX). FPX seeks investment results that correspond generally to the price and yield of an equity index called the IPOX®-100 U.S. Index, which seeks to measure the performance of the equity securities of the 100 largest and typically most liquid IPOs, including spin-offs and equity carve-outs of U.S. companies.
For investors seeking IPO opportunities around the globe, the Renaissance International IPO ETF (NYSEArca: IPOS) adds an international spin to the IPO market. IPOS tracks the rules-based Renaissance International IPO Index, which adds sizeable new companies on a fast-entry basis with the rest upon scheduled quarterly reviews.
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