Which IPO ETF Is the Best Investment: Renaissance vs. First Trust

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Apr. 23 2021, Updated 3:43 p.m. ET

Investing in an initial public offering can be a risky move. It's difficult to choose the right one, and volatility is a big factor in fresh-faced listings. An exchange-traded fund of new IPOs streamlines the process, but finding one requires choosing the best IPO ETF on the market.

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The top contenders are the Renaissance IPO ETF and First Trust US Equity Opportunities ETF. Let's dissect these options and determine which one provides adequate padding to risk while still staying open to potential IPO upswings. 

A look at the Renaissance IPO ETF:

Investors know this Renaissance Capital ETF by its face-value ticker symbol "IPO." Its primary exchange is the NYSE Arca. The expense ratio is 0.6 percent, which is fair in terms of niche ETFs. If applicable, dividends are paid quarterly (there were no payments in 2020).

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Because of a boom in IPOs, this ETF has outperformed the S&P 500 since May 2020. The gap may close but the ETF is likely to keep its edge.

Shares have traded more modestly in 2021 with a YTD return of just 0.56 percent. Comparatively, the 12-month trailing rate of return is 116.33 percent.

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This October, Renaissance IPO will be celebrating its eighth year on the market. This gives it a sort of historical significance, with lifetime returns up to 208.74 percent. Keep in mind that most of those returns have come in the past two years, so volatility is likely down the line.

Top holdings for Renaissance include:

  • Zoom Video Communications
  • Uber Technologies
  • Coinbase Global
  • CrowdStrike Holdings Equity
  • Pinterest
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Some of these IPOs are older (like Zoom) while others are brand new (Coinbase) which gives this fund an edge. Other brand-new holdings include Roblox, Coupang, and Bumble. There are 63 equity holdings in total with 0.28 percent liquidity.

How the First Trust US Equity Opportunities ETF stacks up:

The First Trust IPO ETF can be found under the ticker symbol "FPX." Again, the primary exchange is NYSE Arca. The expense ratio for the fund is 0.58 percent, which is slightly lower than the Renaissance IPO. Dividends are typically paid out quarterly and investors did receive a payout for every quarter of 2020.

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First Trust  YTD returns are at 7.58 percent, which means this fund is outperforming Renaissance in the short term. However, the 12-month trailing rate is more modest than its competitor at 79.25 percent.

Around since 2006, the First Trust IPO ETF has history on its side. Lifetime returns are at an impressive 523.68 percent. 

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 Top holdings for First Trust include:

  • Snap Inc.
  • Uber Technologies
  • Marvell Technology Inc.
  • Thermo Fisher Scientific Inc.
  • Dow Inc.

A lot of the holdings are similar, but the weights are different. First Trust seems to give more priority to older stocks (they're also in Coinbase, but the weight is much lower), which could mean reduced volatility.

Which IPO ETF should you trade?

The First Trust US Equity Opportunities ETF seems like a more appropriate fit for risk-averse investors while the Renaissance Capital IPO ETF could provide swifter returns over the next year. However, both options require a longer time horizon based on the inherent volatility in IPOs. There are also global options from both fund managers, and those have their own opportunities and risks as well.

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