Two Safe Ways to Trade a Potentially Hot IPO Market

Aug 28, 2023

Markets are waiting on two potentially red-hot IPOs.

There’s one coming from Instacart, which just filed to go public on the NASDAQ under CART.

In its prospectus, the company said it had sales of $1.475 billion in the first six months of the year. That was up from the $1.226 billion posted year over year. Net income for the first six months of the year was 27 cents per diluted share, up from a loss of $1.03.

If successful, according to The New York Times, it could force even more companies to go public. “At least 1,400 private tech companies worth $1 billion or more have been waiting for a more favorable I.P.O. market, said Brianne Lynch, head of market insights at Equity Zen, an online marketplace for private stock.”

The other one is Arm – which is owned by SoftBank – and filed to list on the NASDAQ under the ticker “ARM.” For fiscal year 2023, the company reported $524 million in net income on $2.68 billion in revenues. That revenue was down slightly from the $2.7 billion posted in 2022.

Plus, as noted by CNBC, “Arm chips are made by companies including Amazon, Alphabet, AMD, Intel, Nvidia, Qualcomm, and Samsung, according to the filing. Its technology is also included in Apple’s chips for iPhones. Arm said that its technology was included in over 30 billion chips shipped in its fiscal 2023. Arm typically takes a fee on every chip that is shipped.”

Both could be exciting. And both could rocket higher on the days on their respective IPOs on hype and a lot of hope. However, not all IPOs work out well – especially for retail investors who are left holding the bag far too often.

For “safer” exposure to a potentially red-hot IPO market, investors may want to take a look at ETFs, such as the First Trust US Equity Opportunities ETF (FPX). This particular ETF invests in
100 of the largest, typically best performing and most liquid U.S. public offerings. Not only does it provide exposure to IPO excitement, it does so at less cost. Also, it doesn’t matter if an IPO is hot or a dud, the IPO excitement will often drive the ETF higher.

Or, take a look at the Renaissance IPO ETF (IPO). With an expense ratio of 0.60%, the ETF provides investors with the largest, most liquid US-listed newly public company stocks in one security, reducing the risk of single-stock ownership while avoiding overlap with major core indices for optimal diversification across markets and time, as noted by Renaissance Capital.

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