A Duo of IPO-Focused ETFs

02/22/2017 7:00 am EST

Focus: ETFs

Jim Woods

Editor, Successful Investing and Intelligence Report

I love capitalism, free minds and free markets; in fact, I’m a proud extremist and an ardent advocate for these principles because, to the extent they exist, you’ll find a flourishing economy, asserts Jim Woods, fund expert and editor of Successful ETF Investing.

Given the change of leadership, as well as the early steps by President Trump to begin the process of deregulating the economy, I think the climate for American business is going to be much more fertile than it has been in years.

We could even be in for a new American renaissance of sorts, one in which companies want to raise capital, want to expand, want to take chances and want to go public.

In fact, I think 2017 could be a very good year for new and recent initial public offerings (IPOs). Yet unfortunately, unless you are an extremely well-heeled investor, your access to IPOs directly often is limited and/or non-existent.

Yet thanks to two ETFs, we now can gain exposure to many of the market’s most-recent IPOs.

The Renaissance IPO ETF (IPO) and the First Trust U.S. Equity Opportunities ETF (FPX) both give investors exposure to companies that recently have become part of the public equity markets.

The Renaissance ETF is a fund that tracks companies with recorded initial public offerings within the previous two years. This can be a time of strong price change for the stocks in question and is generally considered a period of high risk.

The fund quickly adds new American public companies to its portfolio as long as they meet a certain market-cap requirement.

FPX is like the Renaissance ETF, but it differs in that it focuses on IPOs that are more likely to outperform in the long-run. This situation makes FPX a popular choice among investors that employ a buy-and-hold strategy (a strategy we do not advocate in this service).

The top five holdings in the Renaissance ETF are First Datacorp (FDC), 9.26%; Transunion (TRU), 7.85%; Shopify (SHOP), 5.47%; Summit Materials (SUM), 4.29%; and Univar (UNVR), 4.17%.

By contrast, the top five holdings in FPX are Kraft Heinz Co. (KHC), 10.00%; AbbVie (ABBV) 9.28%; Shire PLC (SHPG), 4.69%; PayPal Holdings (PYPL), 4.68%; and Facebook (FB), 3.6%.

Both of these funds could find a home in either our Growth or Aggressive Portfolios this year. If I had to pick one, I would probably go with the Renaissance ETF, as it is a bit more of a true IPO fund than FPX. That said, smart investors will be well served by putting both of these funds on their 2017 watch lists.

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