initial public offerings (IPOs) trading on American exchanges

Wednesday, October 23, 2013

Renaissance Capital Launches the Renaissance IPO ETF (Symbol: IPO)

The new ETF is linked to the Renaissance IPO Index, which is a benchmark designed to hold the largest, most liquid newly listed domestic IPOs. The underlying benchmark is dynamic in nature; IPO is expected to include new companies on the fifth day of trading, or upon quarterly review. Furthermore, the entire basket of holdings is rebalanced regularly as the index removes securities after they have been publicly traded for two years.

Renaissance Capital is well versed when it comes to new public offerings as the company boasts a reputation as a global IPO investment advisor; the firm is responsible for managing the Global IPO Plus Aftermarket Fund (IPOSX) as well as separately managed institutional accounts.

The IPO ETF is designed to offer investors a broad-based approach for accessing the newest companies well before they would be eligible for inclusion in funds linked to more traditional, passive “core” equity indexes. As of September 30, 2013, IPO’s benchmark included significant exposure to:

  • Facebook (FB)   (11.0% position)
  • Michael Kors Holdings (KORS) (9.8% position)
  • Workday (WDAY) (4.5% position in the cloud-based HR platform)

Meet The Competition
The new IPO ETF charges 0.60% in expense fees, placing it in the “expensive” end of the cost spectrum among offerings in the All Cap Equities ETFdb Category. However, given the fund’s niche strategy, it really has one direct competitor at the moment: the First Trust IPOX-100 Index Fund (FPX, B). By comparison, the First Trust offering charges the same expense ratio and has managed to accumulate over $180 million in assets under management since launching in April of 2006.

The Renaissance IPO ETF warrants a closer look from anyone looking to gain broad exposure to the newest companies hitting the stock market, but are wary of doing so on a stock-by-stock basis.


The fund is linked to the Renaissance IPO Index, an index developed in-house by Renaissance Capital. New companies are included in the index on a fast-entry basis on the fifth day of trading, or upon quarterly review, and are removed after two years when the IPOs become seasoned stocks. The index incorporates certain size, liquidity and free-float criteria to ensure investability.

As of October 21, 2013, top holdings in the index include a 10.9% position in leading social network Facebook, a 9.9% position in global animal health company Zoetis, formerly part of Pfizer, a 9.8% position in automotive parts manufacturer Delphi Automotive, a 9.2% position in global luxury fashion brand Michael Kors, and a 5.3% position in real estate broker Realogy. The fund has a total expense ratio of 0.60%.

The Renaissance Capital offering will compete against the First Trust US IPO Index ETF (FPX), also listed on the NYSE Arca. This fund, which launched in April 2006 and has $227 million in assets, tracks the IPOX-100 US Index, a modified value-weighted price index measuring the performance of the 100 largest, typically best-performing and most liquid US public offerings and spin-offs. The index is dynamically reconstituted as IPOs enter the index at their 7th trading day and exit automatically 1000 trading days thereafter. It has an expense ratio of 0.60%.

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