With IPOs Red Hot, What's Next For ETFs?

Image: Bigstock

In this episode of ETF Spotlight, I speak with Kathleen Smith, chairman, and co-founder of Renaissance Capital, a global IPO investment advisory firm.

Capital markets are very hot this year. Companies around the world have raised trillions of dollars in debt and equity to take advantage of rising stock markets, and unprecedented monetary and fiscal stimulus. Money raised by US IPOs in 2021, including SPACs, is already the highest on record for any full year, per WSJ.

The most highly anticipated IPOs of the fourth quarter include electric truck maker Rivian, shoemaker Allbirds, and chipmaker GlobalFoundries. Many recent IPO filings have highlighted their commitment to sustainability as ESG is one of the hottest investing trends lately.

2020 was also a blockbuster year for IPOs. Some of the newly public companies were working on coronavirus vaccines and therapeutics. Others were “new economy” companies like Zoom Video (ZM - Free Report), which benefitted immensely from the pandemic-driven trends but have been under pressure lately due to rising rates. Many of these have projected earnings in the future and higher interest rates make those earnings look less attractive.

The Renaissance IPO ETF (IPO - Free Report) provides diversified exposure to newly public companies before they join other core US equity indexes. Major indexes usually include newly public companies only after a “seasoning” period. For example, Google (GOOGL - Free Report) and Facebook (FB - Free Report) were included in the S&P 500 index about two years after going public.

IPO ETF, which had soared in 2020, is down slightly year-to-date. Its top holdings include Moderna (MRNA - Free Report) and Uber (UBER - Free Report). The Renaissance International IPO ETF (IPOS - Free Report) holds recently listed international IPOs.

SPACs, which raise money from investors, only to find a private company and take it public, were very hot earlier this year. Many startups preferred going public through SPACs to avoid the cumbersome and time-consuming traditional IPO process. They were also able to avoid normal due diligence that a traditional IPO must go through. Many SPACs are now trading at deep discounts.

Disclaimer: Neither Zacks Investment Research, Inc. nor its Information Providers can guarantee the accuracy, completeness, timeliness, or correct sequencing of any of the Information on the Web ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.