3 ETFs That May Be Ways To Tap Evolent's Bumper IPO

Evolent Health (EVH), developer and provider of cloud-based healthcare delivery and payment solutions in the U.S., made a grand entry into the New York Stock Exchange on Friday. Having cashed in on the unparalleled boom in the health care industry, the stock surged 10.94% at its debut trading on June 5. The stock also added on gains of about 1% after hours.

This health care software maker priced its IPO at $17 per share to raise about $195.5 million off 11.5 million shares. The company was worth about $950 million. Previously, this 2011-born software firm intended to raise about $100 million via initial public offering, but eventually boosted its IPO size.

What’s Behind the Confidence?

The company taps two winning spaces of the investing world – health care and technology. In its filing, the company noted that its ‘total market opportunity is over $10 billion’ right now thanks to health insurance or the Affordable Care Act, the surge in ‘value-based contracting’ and the growing importance of ‘the provider-sponsored health plan market’.

Around 10% of health care payments are made through value-based care programs at present (per the filing), but the company projects this figure to touch 50% in 2020. Management expects all these attributes to take the total market size to $46 billion by 2020.

Notably, the company’s revenues grew from $40.3 million in fiscal 2013 to $100.9 million in fiscal 2014. The company’s CEO seeks to attain minimum of 30% growth rate over the longer term. In short, the company offers significant growth prospects in a defensive sector like health care.

Investors intending to ride this growth story can try out the stock. After all, tech stocks should be hot-selling ones in 2015. However, as tech stocks are high-risk in nature and there are talks of overvaluation in the health care space, investors may tap this in an ETF form to diversify the risk factors. The following ETFs might be in focus in the coming days if Evolent IPO carries out its momentum.

First Trust US IPO (NYSE:FPX)

This ETF targets the U.S. IPO market and follows the IPOX-100 U.S. Index. It has accumulated $720.5 million in AUM and charges 60 bps in fees a year. Volume is decent as it exchanges around 50,000 shares in hand on average. In total, the fund holds 100 securities.

The product has a nice mix of sectors, with the top two being consumer discretionary (23.4%) and information technology (22.7%). Health care takes the third spot with over 19% exposure.

Since the ETF focuses on the 100 largest and most liquid U.S. IPOs, new companies can find entry into the fund’s holding after trading for a minimum of 100 days. FPX is up 9.5% so far this year (as of June 5, 2015).

Renaissance IPO (NYSE:IPO)

This new fund also provides exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a ‘fast entry basis’ on the fifth day of trading. The fund holds 56 stocks and has attracted $28.5 million in AUM.

It trades in light volume of less than 10,000 shares, ensuring additional cost beyond the expense ratio of 0.60%. From a sector look, technology stocks make up for more than one-third share. Year to date, the fund has added 9.2% return.

iShares US Healthcare Providers (NYSE:IHF)

This fund follows the Dow Jones U.S. Select Health Care Providers Index, giving investors exposure to the broad health care industry. The fund holds about 49 stocks in its basket with AUM of $878.9 million while charging 43 bps in fees per year. It trades in decent volume of around 100,000 shares a day.

In terms of industrial exposure, Health Care Providers & Services makes 96.4% of the basket, followed by Health Care Technology (1.5%). IHF is up 15.7% in the year-to-date timeframe. IHF has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

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