As capital market insiders anticipate a strong finish to the year for initial public offerings with a robust pipeline slated for 2022, investors could also tap into the IPO market with thematic exchange traded funds.
Over 2,000 IPOs have raised a combined $421 billion globally as of the end of September, a record high, as private companies that sat out the volatility during the coronavirus pandemic rushed to get their share of the surging valuations seen among publicly listed peers, Reuters reports. The amount that IPOs have raised so far this year is already double the proceeds raised during the same period last year, according to Refinitiv data.
However, four IPOs have withdrawn or postponed listings in the U.S. over the past three weeks due to uncertainty over the U.S. debt ceiling, ongoing concerns over Chinese property developer Evergrande, surging energy prices, and inflation, all of which have made it harder for companies to accurately price their stock market debuts.
“We see not only new deals coming to the market, we see existing engagements continuing to move forward,” Marc Jaffe, managing partner of law firm Latham & Watkins, told Reuters.
IPO hopefuls that have jumped in despite the market volatility were rewarded by investors. Shares of U.S. companies that have gone public over the last four weeks have increased 25.5% on average, according to Dealogic.
“Investors have narrowed the scope of investments to consider given overall muted performance in the secondary market,” Jim Cooney, head of Americas equity capital markets at Bank of America Corp, told Reuters, adding that the recent IPO jitters revealed that the market was resilient but that investors were becoming more selective.
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 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 the IPOX®-100 U.S. Index, an equity index that 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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