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Don't Be Fooled by Drop in IPO ETFs: Road Ahead Looks Smooth

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The IPO market remained super solid this year. Though Renaissance IPO ETF (IPO - Free Report) lost 3.1% on Dec 9 on broader market concerns, the prospect looks pretty upbeat. There have been 205 IPOs priced this year, up 34.9% from last year, per renaissancecapital. Total proceeds raised are $74.2 billion, up 70.2% from last year. About 247 IPOs were filed this year, marking an increase of 24.7% from last year.

There have been 220 SPAC IPOs this year, with healthcare taking half the total volume. Some of these newly public biotech companies are working on coronavirus vaccines and therapeutics and have thus been hugely popular with investors. The recent resurgence in blank check and Special Purchase Acquisition Companies (SPAC) has been one of the main reasons for the rally in IPO ETFs.

Among the recently priced IPOs, C3.ai (up 120.2%; offer date Dec 8, 2020), 17 Education & Tech (up 92.2%, offer date Dec 4, 2020), Seer (up 247.4%, offer date Dec 3, 2020), Kinnate Biopharma (up 126.3%, offer date Dec 2, 2020), Olema Pharmaceuticals (up 130.1%, offer date Nov 18, 2020), Praxis (up 124.3%, offer date Oct 15, 2020) are some that have seen a huge surge in returns from IPO.

Food & Lodging Hogging the IPO Limelight at Present

Many IPOs have seen huge success this year with the largest provider of food delivery services DoorDash DASH grabbing attention currently.The stock gained 86% on its debut on Dec 9. Its $102 IPO price breezed past the estimated price range of $90 to $95.

Most importantly, the company initially filed to offer at a range of $75 to $85. The stock closed its first day on the New York Stock Exchange at $189 per share. Overall, DoorDash raised $3.4 billion with an initial public offering.

Apart from DoorDash, Airbnb ABNB is making quite a buzz. Its shares are likely to begin trading from Dec 10. It reportedly priced its initial public offering at $68 per share, in one of this year’s largest and highly anticipated IPOs.

Before this, Airbnb had planned to sell around 51 million shares at $56 to $60 per share, having boosted this range from an earlier target of $44 to $50 per share, per Reuters. The outlook looks promising for the company as with virus concerns prevailing, many travelers may be intending to book homes instead of hotels.

How to Invest?

Overall, the IPO pipeline is still solid. SPAC activity maintained the winning momentum. Against this backdrop, investors can bet on the following ETFs.

Defiance NextGen SPAC IPO ETF (SPAK - Free Report)

The underlying Indxx SPAC & NextGen IPO Index of the fund SPAK tracks the performance of the common stock of newly listed Special Purpose Acquisition Companies (SPACs), ex-warrants, and IPOs derived from Acquisition Companies over the preceding 36 months.

An 80% weighting is attached to IPO companies derived from SPACs and 20% is allocated to the common stocks of newly listed Special Purpose Acquisition Companies. The fund charges 45 bps in fees.

Renaissance IPO ETF (IPO - Free Report) )

The underlying Renaissance IPO Index is a portfolio of newly U.S.-listed IPOs of companies whose unseasoned equities are under-represented in core U.S. equity indices. Notably, IPOs that meet liquidity & operational screens are included on the index at the end of the fifth day of trading, or upon quarterly reviews, weighted by tradable float, capped at 10% and removed after two years. The fund charges 60 bps in fees.

Renaissance International IPO ETF (IPOS - Free Report)

The underlying Renaissance International IPO Index is a stock market index based upon a portfolio of non-U.S.-listed newly public companies, prior to their inclusion in global core equity portfolios. The fund charges 80 bps in fees. The fund charges 80 bps in fees. 

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