After A Stellar 2019, What Awaits Global IPO ETFs In 2020?

IPOs staged a great show in 2019, despite a wobbly start. Government shutdown kept the space idle in January. With the SEC deferring the completion of reviews, Q1 IPO activity slowed a bit only to register a sharp rebound in the later months.

There were 165 IPOs in the United States in the whole of 2019, resulting in $50 billion in proceeds. On the global level, 2019 saw 1,115 IPOs, down 19% year over year, per EY, resulting in proceeds of $198 billion, down 4% year over year.

In Americas, there were 213 IPOs, down 20% year over year (proceeds down 10%). Asia-Pacific witnessed 668 IPOs, down 1% from 2018 (proceeds down 8%) while Europe, Middle East, India and Africa (EMEIA) had witnessed an uptick in IPO proceeds, up 14% year over year, though deal volume was down 47% from the 2018-level. Listing of Saudi Aramco (SE:2222) benefited the EMEIA proceeds greatly.

Largest U.S. IPOs were from Slack (NYSE:WORK) and Uber (NYSE:UBER) with deal sizes being $7.4 billion and $8.1 billion, while the biggest international IPO came from Saudi Aramco with a deal size of $25.6 billion (read: Get Over Lyft Flop, Tap Uber IPO Euphoria With These ETFs).

High-profile U.S. IPOs like Uber, Levi Strauss (NYSE:LEVI) , Lyft (NASDAQ:LYFT) , Pinterest (NYSE:PINS) , Zoom Video Communications (NASDAQ:ZM) , however, couldn’t live up to investors’ hopes and have shed 15.5%, 10%, 9%, 20.8% and 97% since inception, respectively.

Healthcare, technology, financials, and energy were the sectors that won in term of deal volumes and proceeds in the United States. But Asia-Pacific was a true star, having accounted for seven of the top 10 exchanges by deal numbers and five of the top 10 by proceeds in 2019.

China has been a hot spot with 2019 deal numbers crossing 2018 by 14% and proceeds by 28%. IPO performances have also been upbeat since inception (up 18.3% in the main market) for the Asia-Pacific segment (read: Phase-One Trade Deal to Boost These ETF Areas).

What Lies Ahead?

The EY report says that the United States may see a front-end loaded IPO in 2020, given the presidential election scheduled in November, which can cause volatility in the market. Brazil and Canada have solid IPO pipelines for 2020. Asia-Pacific is also about to see a busy first half while EMEIA is expected to log an improved scenario with fading trade tensions and less ambiguity over Brexit.

The sentiment is particularly strong in the U.S. market. A record-high stock market is expected to drive the IPO market, per EY. Japan saw a pickup in activity in Q4 of 2019 and is expected to maintain the momentum. Singapore is another market that is favored by EY as an IPO hot spot in 2020.

EMEIA region will benefit from easing Brexit tensions and a relatively upbeat economic growth forecast by IMF for the U.K. economy. India’s IPO activity could benefit from lower corporate tax rates. However, African markets may remain muted due to geopolitical tensions.

Per an analyst, some of the hot IPO candidates for 2020 could be Airbnb, Robinhood, Postmates, Ant Financial, WeWork, Casper, Snowflake, Palantir, Didi Chuxing and GitLab.

ETFs to Watch

Against this backdrop, investors can tap ETFs like the U.S.-centric First Trust US IPO Index Fund (TSXV:FPX) ), Renaissance IPO ETF (TSX:IPO) as well as the international versions like Renaissance International IPO ETF (TSX:IPO) and First Trust International Equity Opportunities ETF (TSXV:FPX) .

IPO, FPX, IPOS and FPXI are up 3.5%, 5.5%, 3.8% and 1.9% this year, respectively, (as of Jan 17) and gained 26.1%, 23.1%, 31.2% and 31.4% in the past one year.

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