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The Initial Public Offering market has been heating up lately as investors pile into riskier areas. Several high-profile private companies, particularly in the AI and crypto space, have debuted this year with strong first-day gains. The Renaissance IPO ETF (IPO) holds the largest and most liquid newly listed IPOs.

IPOs had boomed in 2020 and 2021 when interest rates were ultra-low and liquidity was abundant. But when the Federal Reserve began raising rates, the market collapsed, and IPO activity went into hibernation for nearly two years.

More recently, software firm Figma Inc. (FIG) more than tripled, and stablecoin issuer Circle Internet Group Inc. (CRCL) more than doubled, in their debuts. Bullish (BLSH) jumped more than 80% on its first trading day.
 

Renaissance IPO ETF (IPO)
 

The Trump Administration is also reportedly considering IPOs for Fannie Mae and Freddie Mac, which could be the largest on record. That said, it’s important to remember that not all IPOs are successful. Investing in smaller, lesser-known companies can be quite risky. While a few of these fledgling firms may become excellent long-term investments, others can lead to significant losses.

Trading also tends to be volatile in the first few months as analysts and investors learn more about newly public companies. An ETF approach can help reduce risk while still allowing investors to participate in the potential gains of a diversified group of larger, more liquid IPOs.

With the IPO ETF, companies that have been public for three years are removed at the next quarterly review. Meanwhile, the First Trust US Equity Opportunities ETF (FPX) holds the 100 largest and most liquid IPOs, including spin-offs. Palantir Technologies Inc. (PLTR), AppLovin Corp. (APP), and Robinhood Markets Inc. (HOOD) are among its top holdings.

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