Back to top

Image: Bigstock

IPOs See Best Q2 in 2 Decades: ETFs to Ride the Boom

Read MoreHide Full Article

The U.S. IPO market set another milestone in the second quarter with 113 IPOs raising $39.9 billion, according to data from Renaissance Capital. This marks the “busiest quarter for IPOs in over two decades” and is nearly three times the 39 offerings, valued at $15 billion, during the year-ago quarter.

After a slowdown in May, newly public companies roared back in June, which was the busiest month since August 2000. IPOs produced an average of 34% return in the second quarter, compared to 13.5% in the first. The boom came on the back of a skyrocketing stock market driven by the vaccination drive and an expanded stimulus (read: U.S. IPO Market Sizzles: ETFs to Bet On).

The dual tailwinds have fueled a wave of speculative frenzy that have benefited not only traditional companies going public, but also special purpose acquisition companies (SPACs) formed strictly to raise money through IPOs. About 364 SPACs have been formed so far this year, raising roughly $112.3 billion or nearly two-thirds of the total IPO volume, according to data from SPAC Research. This is well above the $83 billion for all of 2020.

Though the biotech corner of the broad healthcare led in the second quarter with 46 IPOs, the technology sector raised the majority of proceeds with 42 IPOs. The 10 largest IPOs raised a combined $15.6 billion, equating 39% of the quarter’s total proceeds. Cryptocurrency exchange Coinbase Global (COIN - Free Report) , robotics and automation company UiPath (PATH - Free Report) , mobile game developer AppLovin (APP - Free Report) , financial technology company Marqeta (MQ - Free Report) , oat maker Oatly (OTLY - Free Report) , cybersecurity company SentinelOne (S), and Chinese ride-hailing giant DiDi are among the biggest IPOs during the quarter (read: 6 ETFs That Have Fast Filled Coinbase in Their Roster).  

With this, 18 IPOs raised a billion dollars or more in the first half of the year. This represents the largest number ever of billion-dollar IPOs in a first half. Overall, the first half of the year was a monster for the IPO market, which saw 213 IPOs raising more than $70 billion.

What’s Hot on Wheels for 2H?

The solid IPO trend is likely to continue with many highly anticipated IPOs. Per CNBC, about 87 companies are currently in the pipeline of going public and looking to raise a total of more than $20 billion, including the Mark Wahlberg-backed fitness studio F45 Training and luxury social club operator Membership Collective, which is the owner of Soho House.

The IPO bunch of some well-known companies include online brokerage Robinhood, hyperlocal social media network Nextdoor, payments giant Stripe, electric-vehicle maker Rivian Automotive, grocery-delivery app Instacart, electrical vehicles maker Lucid Motors, enterprise software Databricks and financial app Chime (read: Ride the Renewed Meme Stock Wave With This New ETF).

How to Play?

With a large pipeline and some reputable companies likely to go public in the second half, the IPO market is expected to fetch a staggering $250-$300 billion by the end of the year. While investing in many IPOs at the same time could be difficult, investors could easily tap the boom with the following ETFs discussed below:

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. It currently holds 73 stocks in its basket, with each accounting for less than 10% exposure. The fund has amassed $584.4 million in its asset base while trading in a light volume of about 268,000 shares, probably implying additional cost beyond the expense ratio of 0.60%.

First Trust US Equity Opportunities ETF (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. It holds 100 securities in its basket with the largest allocation going to the top firm with 8% share, while other securities hold no more than 6.8% of the assets. The fund has $2.1 billion in AUM and witnesses volume of about 99,000 shares per day. It charges 57 bps in fees a year (see: all the All-Cap Growth ETFs here).

Defiance Next Gen SPAC Derived ETF

This is the first SPAC ETF and tracks the Indxx SPAC & NextGen IPO Index, which measures the performance of the U.S.-listed common stocks of Special Purpose Acquisitions Corporations and the companies derived from it. The fund covers the pre-deal SPACs and the post-merger companies for the subsequent two years, giving investors access to a lot of growth potential. It holds 298 stocks in its basket and charges 45 bps in annual fees. The ETF has accumulated $60.1 million in its asset base since its inception in September and trades in an average daily volume of 52,000 shares.

SPAC and New Issue ETF (SPCX - Free Report)

It is the first actively managed SPAC ETF providing investors exposure to a broad portfolio of SPACs with the familiar attributes of diversity, tax efficiency and liquidity. The fund holds 118 stocks in its basket and has accumulated $110.1 million in its asset base since its inception in December. It charges 95 bps in annual fees and trades in an average daily volume of 60,000 shares.

Morgan Creek Exos SPAC Originated ETF

This is also an actively managed fund that seeks capital appreciation by investing primarily in U.S.-listed special purpose acquisition companies and in companies that have merged with or have been acquired by a SPAC. It holds 101 stocks in its basket and has gathered $25 million in its asset base since its debut in late January. The ETF trades in volume of 18,000 shares per day on average.

Bottom Line

Considering the most anticipated offerings this year, investors seeking to take advantage of new growth stocks could definitely bank on these two ETFs. The huge success of the new listings and a booming IPO industry would further drive the funds.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Published in