The Renaissance IPO ETF [IPO] has soared over 65% so far this year (through 25 September), boosted by the strong performance of newly listed tech firms during the coronavirus pandemic.
Renaissance Capital’s IPO ETF started the year at $31.60 on 2 January before slumping to a low of $21.56 on 18 March, as the virus’s impact on the economy and society shook markets.
However, the subsequent market revival during the second quarter helped the ETF surge by a whopping 138% since its mid-March low to stand at $51.38 on 25 September.
Renaissance IPO ETF's climb since mid-March lows
Tech stocks drive gains in IPO ETF
As it stands, the Renaissance IPO ETF’s year to date total daily return is 65%. The fund also has net assets of $66.73m.
The IPO ETF, first launched in October 2013, gives investors exposure to companies that have recently completed an IPO and are listed on a US exchange.
The fund is set up to track the Renaissance IPO Index, which is also designed by Renaissance Capital and holds the top 80% of public companies that have floated in the last two years based on market value.
Sizable IPOs are added on a fast entry basis with the rest joining during scheduled quarterly reviews. Companies that have been public for two years are removed.
The Renaissance IPO ETF has 47 holdings as of 25 September. According to Yahoo Finance, its biggest weighting is in technology at 35.3%, healthcare at 19.3% and communication services at 16.9%.
Zoom Video Communications [ZM] is the top holding in the fund with a 11.6% weighting followed by ride-sharing group Uber Technologies [UBER] at 8.5%, cloud stock CrowdStrike [CRWD] at 6.5%, biotech firm Moderna [MRNA] at 6.1% and social media stock Pinterest [PINS].
Boosted by the rise in remote working during pandemic, Zoom’s share price was catapulted from $68.27 in early January to $496.50 on 25 September. Like Zoom, CrowdStrike and Uber also benefited from the work from home theme, rising 175% and 11%, respectively, in the same period.
Moderna’s share price has also shot up so far this year, climbing from $19.23 on 2 January to $69.47 on 25 September. Meanwhile, Pinterest’s share price has grown from $18.80 to $39.90 in the same period.
Tech floats flood Wall Street
The Renaissance IPO ETF is also benefiting from a surge in new listings. The fund added new market debuts to its holdings earlier this year, including green waste management company GFL Environmental [GFL] and cloud-based operating system nCino [NCNO]. As of 25 September, while shares in GFL Environmental are up 22% since its debut, nCino’s shares are down 12% in comparison.
The fund is also set to add the recently debuted cloud-based data warehousing platform Snowflake’s [SNOW] in its next quarterly listing. The stock priced its IPO at $120 share but opened at $245 on 16 September.
“A tidal wave of enterprise software companies are seeking to go public right after Labor Day,” wrote Bob Pisani of CNBC. “They all have the magic ingredient: strong revenue growth.”
The constant churn of exciting new holdings is a major driver of the IPO ETF but its other main characteristic of waving goodbye to those beyond two years could cause some concern for investors.
For example, the strongly performing Pinduoduo [PDD] was removed in its most recent review in September. Will its replacement perform just as well? Will a healthy roster of IPOs hold up in a recession and expected second virus wave? These are just a few of the headwinds investors will need to consider.
“A tidal wave of enterprise software companies are seeking to go public right after Labor Day ... They all have the magic ingredient: strong revenue growth” - Bob Pisani of CNBC
Recent floats trade 70% above issue price
Kathleen Smith, Renaissance Capital’s co-founder and chairman, has a positive outlook. “Year to date, we’re ahead of last year after the shutdown,” she told CNBC’s ETF Edge.
“We’re seeing an amazing turnaround, an amazing amount of issuance in the regular IPO market.”
According to Smith, 70% of all IPOs are trading above their issue price. She says IPOs are now attracting “momentum players” with investors chasing growth in a low interest rate environment.
According to ETF Trends, US listed IPOs have raised almost $95bn so far this year and with more listings ahead — Airbnb and DoorDash — that’s set to grow.
“There’s been more innovation in the last two years than in the last two decades,” Stacey Cunningham, president of the NYSE, told the Wall Street Journal. “There is a renaissance in the IPO market.”