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IPO Market Hot This Week: ETFs to Tap

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The U.S. IPO market is sizzling this week with 11 deals that will collectively raise more than $2 billion. This will mark the busiest week of this year. In particular, the Chinese companies have been at the forefront with the second-largest mobile search engine Sogou (SOGO) expected to go public on Nov 9. The company plans to raise $540 million at a market capitalization of $4.8 billion (read: What Lies Ahead for China Tech ETFs?).

PPDAI Group (PDPF), a China-based consumer lending platform, plans to raise $298 million at a valuation of $5.7 billion on Nov 10. Chinese tutoring company Four Seasons Education (FEDU) is expected to raise up to $120 million with new listing on Nov 8.

This was followed by the two immunotherapy biotech IPOs InflaRx (IFRX) and Apellis Pharmaceuticals (APLS) on Nov 8 and Nov 9, respectively. Apellis will likely raise $185 million while IFRX would raise $122.7 million. The banking sector is also in focus this week with Metropolitan Bank Holding (MCB) and CBTX (CBTX) going public on Nov 8, raising $121.2 million and $71.8 million, respectively (read: Time to Buy Regional Bank ETFs?).

Other IPOs are WorkSpace Property Trust (WSPT), a real-estate investment trust, which is planning to raise $672.7 million; Bandwidth Inc. (BAND), a cloud-based communications platform, planning to raise $101.2 million; and Erytech Pharma (ERYP), a French biopharmaceutical company, expected to raise $121.3 million. These IPOs are due on Nov 10.

Investors looking to profit from these IPOs should invest in them in a basket form. While not all might be successful and investing in many simultaneously could be difficult, investors should bet on the following two IPO ETFs that offer a low-risk and diversified exposure to the newly minted companies.

First Trust US IPO Index Fund (FPX - Free Report)

This ETF focuses on the largest, best-performing and most-liquid U.S. IPOs and follows the IPOX-100 U.S. Index. New companies can find entry into the fund’s holdings after trading for a minimum of 100 days. In total, the fund holds 101 securities in its basket. The product has a nice mix of sectors, with the top four being information technology, healthcare, consumer discretionary and consumer staples. The fund has accumulated $923 million in AUM and sees volume of about 72,000 shares per day. It charges 60 bps in fees a year and has gained 22.6% in the year-to-date time frame (see: all the Total Market U.S. ETFs here).

Renaissance IPO ETF (IPO - Free Report)

This fund provides exposure to the largest and most-liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a ‘fast entry basis’ on the fifth day of trading. The fund holds 39 stocks in its basket. From a sector look, technology is the top sector, accounting for 38% while consumer discretionary and industrials round off the next two spots with double-digit allocation each. The fund has amassed $16.7 million in its asset base while it trades in a light volume of around 4,000 shares, probably implying additional cost beyond the expense ratio of 0.60%. IPO is up 33.8% so far this year.

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