How Investors Can Get Into Hot IPOs With ETFs and Similar Strategies

After a turbulent and volatile 2018, there are many companies that plan to conduct initial public offerings (IPOs) in 2019. Some companies already have formally filed their S-1 and equivalent forms with the U.S. Securities and Exchange Commission (SEC). Other companies have filed confidential data with the SEC for IPOs, and other so-called unicorn companies, those with private market valuations north of $1 billion, are all highly speculated to come public.

Unfortunately for unicorns and regular companies, the 2018 IPO market was less than stellar for investors. Barron’s even reported at the end of December 2018 that 65 of the past 100 such offerings were “busted IPOs” as their market prices were actually under their formal IPO price — and some of those are considered to be great companies.

On the other hand, 2019 has been fairly positive for the IPO market, with the likes of Pinterest, Zoom and Levi Strauss coming to market. There has to be a middle ground between a total bust and a solid win. On the other hand, the highly anticipated Lyft IPO has burned many IPO investors and has eaten away billions of dollars ahead of the also highly anticipated Uber IPO.

In an effort to mitigate this risk and concern about picking the winners or the losers with each company that comes public, exchange-traded funds (ETFs) are available that offer a sampling and exposure to the IPO market. ETF Database has collected much of the information about these ETFs, among others, and made it easily accessible for those looking to get into the game.

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Note that with companies constantly entering the market, these ETFs act as a revolving door, adding and deleting companies from their holdings on a quarterly basis.

Due to the nature of its holdings and the size of its assets under management, this one gets listed first. First Trust US Equity Opportunities ETF (NYSEARCA: FPX) has been around since April 2006, and it aims to track the IPOX-100 U.S. Index. This ETF is constructed and managed to provide a broad and objective view of global aftermarket performance of recent IPOs and spin-offs within the United States. These stocks remain eligible to be included for approximately four years. It was last seen to have $1.14 billion in assets under management. Its overall expense ratio is 0.59%, and it has traded up 23% so far in 2019. This fund has a total of 100 holdings. The top 10 holdings include all domestic companies:

1. PayPal (9.64%)
2. Verizon (4.29%)
3. Takeda Pharmaceutical (4.21%)
4. Thermo Fisher Scientific (3.41%)
5. Stryker (3.06%)
6. Worldpay (2.83%)
7. Tyson Foods (2.48%)
8. Hershey (2.37%)
9. Dow (2.36%)
10. Eli Lilly (2.26%)

Renaissance IPO ETF (NYSEARCA: IPO) has been around since 2013, and it aims to track the Renaissance IPO Index. This ETF targets U.S. listed newly public companies ahead of their inclusion in core equity portfolios, it is designed to hold the largest, most liquid newly listed U.S. IPOs and include the most economically significant newly public companies. Note that companies that have been public for two years are removed from the ETF at the next quarterly review. It was last seen to have $40.8 million in assets under management. Its overall expense ratio is 0.60%, and it has traded up 33.5% so far in 2019. This fund has a total of 73 holdings. The top 10 holdings include a few recent sizeable IPOs from the United States:

1. Elanco Animal Health (6.73%)
2. VIVI Properties (5.87%)
3. Okta (5.76%)
4. Spotify (4.95%)
5. Altice (4.88%)
6. AXA Equitable (3.43%)
7. Americold Realty Trust (3.20%)
8. DocuSign (2.89%)
9. Zscaler (2.64%)
10. Gardner Denver (2.63%)

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Renaissance International IPO ETF (NYSEARCA: IPOS) has been around since October 2014, and it aims to track the Renaissance International IPO Index. The fund targets non-U.S. listed newly public companies ahead of their inclusion in core equity portfolios. It is designed to hold the largest most liquid newly listed non-U.S. IPOs, and it includes the most economically significant newly public companies. Note that companies that have been public for two years are removed from the ETF at the next quarterly review. It has $2.2 million in assets under management, its overall expense ratio is 0.80%, and it was last seen trading up 16% so far in 2019. This ETF has a total of 69 holdings. Its top 10 holdings include entirely foreign-based firms, with a majority out of Germany and Hong Kong:

1. Softbank (9.11%)
2. Xiaomi (8.59%)
3. China Tower (5.91%)
4. Adyen (4.06%)
5. SG Holdings (3.49%)
6. Siemens Healthineers (3.43%)
7. Knor-Bremse (3.43%)
8. Wuxi Biologics (3.08%)
9. Delivery Hero (3.05%)
10. IRB Brasil (2.87%)

First Trust International Equity Opportunities ETF (NASDAQ: FPXI) has been around since November 2014, and it tracks the IPOX International Index. The ETF is constructed and managed to provide a broad and objective view of global aftermarket performance of recent IPOs and spin-offs in both emerging and developed countries during their first 1,000 trading days. It had $22.9 million in assets under management. Its overall expense ratio is 0.70%, and it has traded up about 17% year to date. Out of the fund’s 50 total holdings, the top 10 holdings are all foreign firms, with a majority from China:

1. Postal Savings Bank of China (6.82%)
2. China Tower (6.63%)
3. China Vanke (6.00%)
4. Siemens Healthineers (5.88%)
5. Japan Post Holdings (5.53%)
6. Orsted (5.49%)
7. Ferrari (4.56%)
8. CK Asset (4.14%)
9. Atlassian (3.64%)
10. Xiaomi (3.64%)

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While there are many overlaps and crossovers among these ETFs, the differences are equally pronounced. Not to mention these ETFs rebalance on a regular basis, incorporating the newest and biggest IPOs into them each quarter. There are also a couple of investment companies that either take venture stakes in pre-IPO companies or have acquired pre-IPO shares from insiders or other sellers.

GSV Capital Corp. (NASDAQ: GSVC) and Firsthand Technology Value Fund Inc. (NASDAQ: SVVC) each offer a backdoor way to play the IPO market as they acquire shares of companies yet to come public. While these firms are more holding companies than ETFs, they offer similar exposure to all these individual firms. Imagine a smaller, scaled-down version of Berkshire Hathaway. Between them, some of their main holdings include Palantir, Spotify, Dropbox, Lyft, Hera, EQX Capital, Lyncean Tech, Pivotal Systems and QuickLogic.
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