There is renewed optimism in the initial public offering (IPO) market. Normally IPO activity gains momentum in the second quarter, and peaks in June. And this year was also no exception to this trend.
In June alone, IPO issuance touched $30 billion, breezing past the $19 billion issued in the entirety of June 2022. There have been 89 IPOs filed (up 15.6% year over year) and 46 IPOs priced this year (up 21.1% from the year-ago period), as of June 25, 2023, per Renaissance Capital.
Total proceeds raised were $7.6 billion this year, up 91.3% from last year. Industrials sector has ruled the space with 60 IPOs, the highest in any sector. The successful debut of Mediterranean restaurant chain Cava and other high-profile IPOs point toward investor appetite for risk-on exposure.
How Has Global IPO Market Fared in 1H of 2023?
The U.S. IPO ETF has rebounded this year as risk-on sentiments have received a shape. Chances of slower Fed rate hikes have made this possible. Renaissance IPO ETF IPO is up 25.8% this year while Renaissance International IPO ETF IPOS has lost about 12%. The S&P 500 is up 13.3% this year (as of Jun 23, 2023).
Global IPO volumes dropped 5%, with proceeds down by 36% year over year, per EY. The United States had its largest offering since November 2021. Asia-Pacific continues to steal the show with an approximate 60% share. Of the top 10 global IPOs, half were from China and one was from Japan. On the other hand, EMEIA IPO activity continued to fall.
What Lies Ahead?
Renaissance Capital expected at the start of 2023 that IPO activity should normalize in mid-2023 as companies in the pipeline are awaiting a favorable business condition. Meanwhile, EY expects a recovery in the situation in late 2023. The sudden eruption of banking crisis may cause the recovery later-than-expected.
However, the renewed rate hike worries could be a drag to the IPO market. We believe, if the Fed enacts two rate hikes each worth 25 bps and stays put in the following few meetings, we can see a healthy U.S. IPO market in 2024.
ETFs to Win in This Scenario
The U.S. IPO ETF IPO can be played given the sluggish recovery in the space. A few different sector ETFs can also be played in this regard. Participation in the IPO market by U.S. and foreign industrials companies have been noticed this year. This means great activities in the industrials sector. This makes it important to play iShares Global Industrials ETF EXI and iShares U.S. Industrials ETF IYJ.
As far as the tech stocks are concerned, iShares Global Tech ETF IXN should be kept under watch due to higher number of global IPOs from the technology sector.
Restaurant ETF like AdvisorShares Restaurant ETF EATZ can also be tapped due to CAVA’s IPO success in the United States. Cava’s massive debut could motivate other restaurant chains to follow the suit, potentially nourishing the dryness in the IPO market.
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Renaissance IPO ETF (IPO): ETF Research Reports
iShares U.S. Industrials ETF (IYJ): ETF Research Reports
Renaissance International IPO ETF (IPOS): ETF Research Reports
iShares Global Tech ETF (IXN): ETF Research Reports
iShares Global Industrials ETF (EXI): ETF Research Reports
AdvisorShares Restaurant ETF (EATZ): ETF Research Reports
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Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
