The best could be yet to come for initial public offerings (IPOs) in the third quarter. According a recent MarketWatch report, the IPO market could see 11 deals and two direct listings this week, which should boost some exchange-traded funds (ETFs).
“Data-mining-software company Palantir Technologies and workplace collaboration and planning software provider Asana are expected to go public on Wednesday via the first direct listings of 2020, according to media reports,” the report said. “Palantir is expected to list with a market value of nearly $20 billion, the Wall Street Journal reported. In a direct listing, a company floats existing shares on an exchange and lets the market decide the price. Palantir’s bankers have told investors the shares could start trading around $10 a pop, the paper reported. Asana is expected to list with a market value of more than $5 billion, according to Renaissance Capital, an operator of IPO exchange-traded funds and provider of institutional research.”
“Recent software IPOs have outperformed, although direct listings historically haven’t seen the same enthusiasm: last year’s sole direct listing, Slack Technologies US:WORK, last closed up 5% from its reference price, while 2018 direct listing Spotify US:SPOT saw little action until soaring more than 100% in the 2Q as usage spiked during the pandemic,” Renaissance Capital co-Founder and Chief Executive Bill Smith said in commentary.
ETF Positioning for Future IPO Strength
With the forthcoming activity in Q3, investors can get broad exposure to IPOs via the Renaissance IPO ETF (NYSEArca: IPO). IPO seeks to replicate the price and yield performance of the Renaissance IPO Index, which is a portfolio of companies that have recently completed an initial public offering (“IPO”) and are listed on a U.S. exchange.
Another fund worth looking at is the First Trust US Equity Opportunities ETF (NYSEArca: FPX). FPX seeks investment results that correspond generally to the price and yield of an equity index called the IPOX®-100 U.S. Index, which seeks to measure the performance of the equity securities of the 100 largest and typically most liquid IPOs, including spin-offs and equity carve-outs of U.S. companies.
For investors seeking IPO opportunities around the globe, the Renaissance International IPO ETF (NYSEArca: IPOS) adds an international spin to the IPO market. IPOS tracks the rules-based Renaissance International IPO Index, which adds sizeable new companies on a fast-entry basis with the rest upon scheduled quarterly reviews. Current IPOS holdings include SoftBank Corp, Xiaomi, and China Tower Corp.
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