Will IPO ETFs Sizzle in 2019?
Sanghamitra Saha, Zacks
Expectations are high that IPOs will stage a great show in 2019, though January was freezing for the space. Only 60 IPOs were priced globally, raising $2.7 billion, according to data compiled by Bloomberg, compared with 126 listings raising more than $13 billion last January. A month-long government shutdown was held responsible for the worst January for IPOs in three years.
The situation was slightly better-off beyond the border with 54 offerings raising $2.3 billion. It still marked a third of the $6.9 billion raised out of 113 IPOs on non-U.S. exchanges in January 2018, per Bloomberg.
Inside the Market Pulse
According to a December survey by BDO USA, 71% of capital market executives at leading investment banks expect IPO activity to rise, or at least remain in the level of 2018, which was the best year for deals since 2014, as quoted on MarketWatch.
The survey sees 37% of bankers expecting private equity portfolios to generate the most IPOs this year, while 35% expect venture capital to break new ground. The latest market rally despite the government shutdown should pave the path for IPOs.
Hurdles in Sight?
Government shutdown kept the space shut in January.With the SEC deferring the completion of reviews, Q1 IPO activity may see a slowdown but the long-term picture looks rosy, per the survey.
While the government has restarted operations at January-end with a Feb 15 deadline for reaching a permanent deal on the Mexico border wall funding, the chance of a second round of shutdown is high. This is because Democrats are still against funding the border wall. However, once a deal is reached, SEC approvals can be offered to companies in the pipeline (read: 3 Dividend Growth ETFs & Stocks to Counter Looming Volatility).
What’s Hot Now?
Biotech IPOs are the trending right now. For example, two biotech IPOs with proposed billion-dollar valuations are on their way to price this week. Alector plans to raise $176 million at a market cap of $1.4 billion, and will start trading on Feb 7. And Gossamer Bio looks to raise $230 million at a $1.0-billion market cap on Feb 8.
Meanwhile, BioNTech AG, a European biotechnology company that is into drug-development partnerships with Pfizer Inc. and Sanofi, is considering an initial public offering in the United States. TCR2 Therapeutics, known for improved immuno-oncology treatments for various forms of cancer, plans to sell $75 million of its common stock in an IPO.
There are names beyond the biotech. Cibus, which has created a platform for non-transgenic seed modification, filed proposed terms for its $100-million IPO. Then there are bigger names like Uber Technologies Inc.’s planned listing. Lyft Inc. has also been awaiting the SEC’s response on its confidential IPO filing.
This year’s other bigshot IPO candidates include Airbnb Inc., which is reportedly eyeing an IPO sometime between June and the end of 2020. And Slack Technologies confidentially filed to go public.
IPO ETFs to Play
In the view of an upbeat environment (barring shutdown woes), one should keep a tab on IPO ETFs like First Trust US Equity Opportunities ETF FPX and Renaissance IPO ETF IPO. Both funds have been steady this year with a respective 13.8% and 20.9% return.