Not All IPOs Are Created Equal
Renaissance IPO Index captures about 95% of U.S. IPO market.
IPO indexes aren't exactly being launched into the marketplace in a steady stream, but you are hearing of them quite a bit lately—in comparison to not at all a few years ago. The best-known are the IPOX family of IPO indexes produced by IPOX Schuster LLC.
Renaissance Capital LLC, a research and investment services provider that focuses on IPOs, has entered the arena with its own IPO benchmark index. The Renaissance IPO Index includes all U.S.-listed, institutionally investable IPOs for a two-year period beginning on their first day of trading.
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Renaissance says the index captures about 95% of the total market value of all IPOs. The index is weighted by float-adjusted market capitalization and requires that components have a float-adjusted market cap of at least $50 million.
Renaissance provides fairly extensive data on the index on its Web site. As of the end of September, the index had 300 components ranging from $46 million to $10.5 billion in size. Among the top 10 holdings are Intercontinental Exchange (ICE), Mastercard Inc., Tim Hortons, KRB Inc., SAIC Inc., Crocs Inc., NYMEX, Spirit AeroSystems Holdings, Blackstone Group and First Solar.
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Those 10 companies represent 30.2% of the index. The IPOX-100 U.S. Index's top 10, by contrast, include Google, Time Warner Cable, Viacom, NYSE Euronext, Covidien, Mastercard, Tyco Electronics, Western Union, Spectra Energy and Ameriprise Financial—an overlap of just one company.
However, since the IPOX indexes include components for roughly four years instead of two, the selection pool is considerably different.
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With just 100 components and a longer period of inclusion, the market-cap range of the component companies is considerably different: $1.5 billion to $55.8 billion. The Renaissance Capital Index has a total market cap of $485.2 billion, versus $547.8 for the IPOX-100 U.S.
The Renaissance IPO Index's largest sector was Basic Industry at 22% of the index, followed by Financial Services at 20% and Retail at 15%. Utilities are barely represented at close to 0%, while Materials and Consumer Basics are both about 1% of the index.
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For the year-to-date time period, the Renaissance Capital IPO Index was up 13.0%, while the IPOX index was up 10.5%. The S&P 500 was up 7.65%.
Renaissance Capital says that IPOs raised $11.3 billion in the third quarter. The number of IPOs was up 29% from the prior year to a count of 40 and the amount raised was up 79%.
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Renaissance Capital Principal Kathy Smith says the number of deals and the level of activity is approaching record levels not seen since 2000. While the level of activity is impressive, it does raise questions about the stability of the continued growth of the IPO market itself.
Presumably investor dollars are not a bottomless well. Should the number of IPOs continue to increase, they may find themselves fighting for dollars among themselves, much in the way that new ETFs are doing now.
In any case, the Renaissance Capital IPO Index is not the first U.S. IPO index, and it does not yet have any products based on it, which the IPOX-100 U.S.
does—the First Trust IPOX-100 Index Fund (Amex: FPX). It also, so far, is not part of a broader family of indexes.
However, the number of its components and its period of inclusion are areas of differentiation, and products based on the index are presumably a possibility. For investors more interested in measuring the performance of newer stocks and a broader number of them, the Renaissance Capital IPO Index may be the index they are looking for.