Several ETFs provide valuable information about how securities, sectors, or indexes are faring. Investors often turn to them because they are tradable and provide decent coverage industries and assets. That said, it’s also important to look at the makeup of each ETF. Digging through the holdings and structures can provide us with plenty of information.
Today, I want to take a look at the Renaissance IPO ETF (IPO), which tracks IPO’s (Initial Public Offerings – or newly public companies). Initially, I thought this would be a good proxy or tell for the recent IPO space. Unfortunately, that may not be the case.
Per Renaissance Capital, here are the top 25 holdings (of 50) for this IPO ETF (as of May 19, 2015):
It’s heavily weighted in higher market capitalization names like Twitter (TWTR) and Alibaba (BABA). And since these two stocks have been trading poorly of late, the ETF has been weighed down. Weightings are nothing new, its just that these IPO names are in different industries and often share little in common other than being “new” public companies.
Here’s a look at IPO’s chart:
The price action in the ETF can be a bit misleading as a “recent” gauge or indicator due to the weighting and selection of holdings. IPO’s such as Freshpet (FRPT), Shake Shack (SHAK), Ambarella (AMBA), Tableau Software (DATA), JD.com (JD), Mobileye (MBLY), and Adeptus Health (ADPT) are smothered by the weighting system or left out. So if you’re an IPO follower, you may want to focus on individual names.
Was the IPO ETF constructed to be another motif for investors and advisers? It appears to be a fun play on IPOs, but I would suggest that investors study up and understand the composition and weighting first. In my opinion, it’s difficult to use as a gauge of overall IPO successes (or failures). Thanks for reading.
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The author has a position in SHAK and DATAÂ at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
