ETFs to Tap the Booming U.S. IPO Market
The U.S. IPO market is sizzling hot this year with companies raising capital breaking the annual 2020 record within less than six months. This is especially true, as IPOs have raised $171 billion so far this year, surpassing last year's record of $168 billion, according to data from Dealogic.
The boom came on the back of a skyrocketing stock market driven by Fed’s easing monetary policy and expanded stimulus. The dual tailwinds have fueled a wave of speculative frenzy that have benefited not only traditional companies going public, but also special purpose acquisition companies (SPACs) formed strictly to raise money through IPOs. About 339 SPACs have been formed this year, raising roughly $105 billion or nearly two-thirds of the total IPO volume, according to data from SPAC Research. This is well above the $83 billion for all of 2020.
Some of the blockbuster IPOs of this year include South Korean e-commerce firm Coupang, cybersecurity firm Darktrace, and cryptocurrency exchange Coinbase Global (read: Coinbase Debuts, Bitcoin & Blockchain ETFs Soar).
The solid IPO trends are likely to continue in the second half given a number of high-profile startups such as China’s largest ride-sharing company Didi Chuxing Technology Co Ltd, online brokerage Robinhood Markets Inc., payments giant Stripe, and electric-vehicle maker Rivian Automotive. By the end of the year, IPOs are expected to fetch a staggering $250-$300 billion.
How to Tap?
Investing in multiple IPOs at the same time can be a difficult task. So, investors can easily tap the IPO boom with the following ETFs discussed below:
Renaissance IPO ETF IPO
This fund provides exposure to the largest and most-liquid, newly listed companies by tracking the Renaissance IPO Index. It currently holds 64 stocks in its basket, with each accounting for less than 10% exposure. The fund has amassed $615.3 million in its asset base while it trades in a light volume of about 285,000 shares, probably implying additional cost beyond the expense ratio of 0.60% (read: Vaccination & Economic Recovery to Boost These ETFs).
First Trust US Equity Opportunities ETF FPX
This ETF focuses on the largest, best-performing and most-liquid U.S. IPOs, and follows the IPOX-100 U.S. Index. It holds 100 securities in its basket with the largest allocation going to the top firm with 9.4% share while other securities hold no more than 5.5% of the assets. The fund has accumulated $2 billion in AUM and witnesses volume of about 102,000 shares per day. It charges 57 bps in fees a year (see: all the All-Cap Growth ETFs here).
Defiance Next Gen SPAC Derived ETF SPAK
This is the first SPAC ETF to ever hit the market and tracks the Indxx SPAC & NextGen IPO Index, which measures the performance of the U.S.-listed common stocks of Special Purpose Acquisitions Corporations and the companies derived from it. The fund covers the pre-deal SPACs and the post-merger companies for the subsequent two years, giving investors access to a lot of growth potential. It holds 239 stocks in its basket and charges 45 bps in annual fees. The ETF has accumulated $61 million in its asset base since its inception in September and trades in an average daily volume of 65,000 shares.
SPAC and New Issue ETF SPCX
It is the first actively-managed SPAC ETF providing investors exposure to a broad portfolio of SPACs with the familiar attributes of diversity, tax efficiency and liquidity. The fund holds 107 stocks in its basket and has accumulated $111.3 million in its asset base since its inception in December. It charges 95 bps in annual fees and trades in an average daily volume of 78,000 shares (read: Record Q1 for Global IPOs? ETFs in Focus).
Morgan Creek Exos SPAC Originated ETF SPXZ
This is also an actively-managed fund that seeks capital appreciation by investing primarily in U.S.-listed special purpose acquisition companies and in companies that have merged with or have been acquired by a SPAC. It holds 102 stocks in its basket and has gathered $26.2 million in its asset base since its debut in late January. The ETF trades in volume of 25,000 shares per day on average.
Bottom Line
Investors looking to take advantage of new growth stocks should definitely bank on these ETFs. The success of the new listings will add further fuel to the booming IPO market.
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Renaissance IPO ETF (IPO): ETF Research Reports
First Trust US Equity Opportunities ETF (FPX): ETF Research Reports
Defiance Next Gen SPAC Derived ETF (SPAK): ETF Research Reports
SPAC and New Issue ETF (SPCX): ETF Research Reports
Morgan Creek Exos SPAC Originated ETF (SPXZ): ETF Research Reports
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