The IPO class of 2021 has been littered with multi-billion-dollar deals that have made insiders rich. Companies like cryptocurrency exchange Coinbase, trading app Robinhood, the automaker Rivian and the online game platform Roblox are among this year’s biggest winners to cash in.
By many measures, it’s been a historic year for the U.S. IPO market. Ninety-four companies went public in the third quarter—the most active third quarter in 21 years.
“Although the fourth quarter may not beat the summer’s record-breaking pace, 2021 will go down as the biggest year for IPO capital ever and the busiest year by deal count since the 2000 internet bubble,” said William K. Smith, CEO and co-founder at Renaissance Capital.
Special-purpose acquisition companies, also known as SPACs, are another element of the U.S. IPO market that's seen brisk dealmaking. Five years ago, just $3.49 billion in 13 SPACs was raised. Thus far in 2021, 456 SPACs have gone public, raising a total of $130.29 billion.
Despite the sizzling pace of new companies being launched into public markets, ETFs tied to new issues have been a mixed bag of performance.
Since the start of the year, the Renaissance IPO ETF (whose ticker is IPO) has slid 2.25%, while the First Trust U.S. Equity Opportunities ETF (FPX) is up by only 5.55%, and the Defiance Next Gen SPAC-Derived ETF (SPAK) has fallen 22.56%.
Among this group, the oldest is the First Trust fund, which was formerly called the First Trust U.S. IPO Index Fund. Launched in 2006, it tracks a modified value weighted index of 100 U.S. listed IPOs. The index uses a 10% capping mechanism to prevent companies from dominating the underlying index. Top holdings inside the FPX fund include Dell Technologies, Marvell Technology and Snap.
The Renaissance IPO exchange-traded fund is another choice for advisors wanting to spice up client portfolios with newly minted public companies. The fund has been a real head-turner, too. It has delivered blockbuster returns the past two years, gaining 34.56% in 2019 and 107.34% in 2020.
The 106-stock fund has almost 90% of its exposure centered on large-cap stocks with the rest being committed to mid-caps. Its top holdings include Moderna, Snowflake and Zoom Video Communications. The index is rebalanced quarterly, and no single stock is allowed to represent more than 10% of the overall portfolio.
SPACs have been accounting for a bigger portion of the overall IPO market—the 2021 market has grown so large it's now outpacing traditional initial public offerings. SPACs account for 64% of all IPOs by sheer number of offerings and 52% of all IPO capital gathered. The latter figure is truly historic, because SPACs have never raised more capital than traditional IPOs at any point in time up until now.
The Defiance SPAK fund, which tracks this market, is celebrating its one-year birthday this month. The fund is a direct play on the SPAC market and excludes traditional IPOs. Its top holdings are familiar SPAC names like DraftKings, Paysafe and Virgin Galactic.