Will the Hot IPO Sector Heat Up Emerging Markets? | ETF Trends

The initial public offering (IPO) market is red hot as economies continue the re-opening process following the Covid-19 pandemic. This global effort could also help feed into strength for IPO markets in emerging economies.

“As COVID pandemic-induced uncertainty enveloped the world’s stock markets, initial public offering activity (IPO) in the emerging markets ground to a halt in the first half of 2020,” a Real Clear Energy article said. “However, since late June stock exchanges have been on the rebound. A backlog of delayed IPOs from early 2020 are now being scheduled for the back half of the year.”

“With central banks providing abundant liquidity, many companies are in a good place to generate solid proceeds in the markets,” the article added. “At the same time, investors can expect good value for their money with an above-average number of companies competing for capital. This is especially true in underpriced emerging economy stock exchanges, which have experienced relatively muted recoveries so far, and continue to suffer from capital flight towards leading global financial centers.”

Investors can get broad exposure to IPOs via 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.

IPO Chart

IPO data by YCharts

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. Current IPOS holdings include SoftBank Corp, Xiaomi, and China Tower Corp.

As developing economies recover, fixed income investors who sense a value play in EM bonds can look to funds like the VanEck Vectors Emerging Markets Aggregate Bond ETF (EMAG). EMAG seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of MVIS® EM Aggregate Bond Index (the “EM Aggregate Bond Index”).

The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index is comprised of emerging market sovereign bonds and corporate bonds denominated in U.S. dollars, Euros or local emerging market currencies. The index includes both investment grade and below investment grade rated securities.

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