This article is a part of InvestorPlace.com’s Best ETFs for 2020 contest. Tom Taulli’s pick for the contest is the Renaissance IPO ETF (NYSEARCA:IPO).
It’s the start of the InvestorPlace.com annual exchange-traded funds contest. And this year my pick is the Renaissance IPO ETF (NYSEARCA:IPO). As part of this contest, I will write quarterly reviews to reflect on the fund’s performance.
So why target the initial public offering market for the best ETFs contest? Well, for the most part, this is an area I’ve been covering since the mid-1990s, with many articles and a few books on the topic. IPOs are definitely a passion of mine.
And hey, this is where you can find the next big idea. For example, if you invested $10,000 in Amazon (NASDAQ:AMZN) at the time of its IPO — on May 17, 1997 — you would have over scored more than $1 million. By the way, had you invested in Walmart (NYSE:WMT) since its offering, you would have made over $10 million (the company went public on Oct. 1, 1970).
Yes, taking a long-term view on things can certainly pay off.
Now, as for this year, there have been some notable gainers:
| Company | Year-to-Date Return |
| Karuna Therapeutics (NASDAQ:KRTX) | 224% |
| Palomar Holdings (NASDAQ:PLMR) | 185% |
| InMode (NASDAQ:INMD) | 219% |
| NextCure (NASDAQ:NXTC) | 164% |
However, this is not to imply that IPOs are sure things, either. It’s actually common to see some implosions. For this year, here are some of the worst performances:
| Company | Year-to-Date Return |
| Guardion Health Sciences (NASDAQ:GHSI) | -95% |
| Greenlane Holdings (NASDAQ:GNLN) | -87% |
| Axcella Health (NASDAQ:AXLA) | -75% |
| Sonim Technologies (NASDAQ:SONM) | -79% |
| Sundial Growers (NASDAQ:SNDL) | -76% |
The bottom line: This is why it is important to diversify across various IPO investments.
Renaissance IPO ETF Background
Renaissance Capital started as a research firm focused on IPOs. The company essentially sold its analysis to institutional investors, such as JPMorgan Chase (NYSE:JPM) and BlackRock (NYSE:BLK).
But over the years, the company has developed offerings for retail investors. Renaissance has an excellent website where you can get free access to calendars, briefs and stats.
Regarding the Renaissance IPO ETF, it is relatively new, having launched in October 2013. Now the performance can be choppy since the IPO market is, well, temperamental. This is mainly due to the fact that many deals are from early stage companies that have higher risk levels. In some cases, the IPO market can completely shutdown. This was the case, for example, during the 2008 financial crisis.
The IPO ETF is based on the Renaissance IPO Index, which represents the top 80% of the newly public companies (which is weighted based on market capitalization). The larger IPOs are added quickly and others are included according to quarterly reviews. And all the companies in the index are removed after two years.
Just some of the current holdings of the IPO ETF include: Spotify (NYSE:SPOT), Roku (NASDAQ:ROKU), DocuSign (NASDAQ:DOCU), Vici Properties (NYSE:VICI) and AXA Equitable Holdings (NYSE:EQH). In all, there are 65 stocks in the portfolio and the fund has an expense ratio of 0.6%, or $60 on a $10,000 investment.
Next year the IPO market should be exciting. After all, marque companies like Airbnb are planning to come public. The IPO ETF will be a great way to participate.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
