Look to ETFs to Take Up Some Slack on IPO Investing

Ridesharing IPOs like Lyft and Uber may have sputtered off the starting line, but some IPOs like Slack are getting rave reviews from market analysts keeping an eye out on the latest offerings from Silicon Valley. Investors who haven’t warmed up to allocating capital into the IPO space can dip their toes in the water with exchange-traded funds (ETFs).

Uber and Lyft aren’t the prime representatives of an IPO space that is actually hot to trot in 2019. According to data provider Dealogic, 25 tech companies have raised $19 billion via IPOs and overall, they’ve been generating returns of 34 percent on their first day of trading, which represents the best performance since 2013.

On average, these IPOs are up over 30 percent. Last week saw the debut of messaging and workplace collaboration company Slack, which unlike its ridesharing IPO peers, surged on its first day of trading.

“Slack is extremely popular with mid-size businesses that are experiencing massive growth,” said Intercom’s Co-Founder and Chief Strategy Officer, Des Traynor. “As these businesses grow, they will increasingly spend more with the company so Slack’s already large revenue will expand with its existing customer base over time. In this way, the company can experience massive revenue growth without even acquiring new customers.”

“Additionally, Slack is leading a megatrend – messaging – and we’re just scratching the surface when it comes to widespread business adoption of that technology,” Traynor added. “We tend to see these types of megatrends first become established with consumers and then move into business, and messaging is following that wave. The bottom line is messengers have become the dominant form of communication between people and businesses, because communication is faster, more personal and more engaging. Slack has nailed down replicating messaging among friends and family to the business world and this form of communication has proven its staying power.”

ETFs to Play the IPO Space

For investors who want a piece of the IPO action, but don’t necessarily want to assume all the risk associated with investing in a single stock like Uber can look to 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.

For investors seeking opportunities overseas, 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. Current IPOS holdings include SoftBank Corp, Xiaomi and China Tower Corp.

For more investing strategies, visit our Equity ETF Channel.