Two Safer Ways to Trade Upcoming IPOs, Like Reddit

Mar 1, 2024

It’s not always a good idea to buy a new IPO.

Look at the Instacart (CART) IPO, for example.

When CART went public, it opened at $30, ran to $42, and closed the day at $33.70. It would sink to about $22.43 from there. Today, it’s back to where it opened on day one.

There was a ton of hype, which we usually see with IPOs, and then nothing.

Even Arm Holdings (ARM) was initially a flop.

Nowadays, Reddit wants to go public, seeking a valuation of about $5 billion. Excitement is already building for a company that said, “We have incurred substantial losses during our history, and may never achieve profitability,” per its US SEC S-1 filing.

So, no, we would avoid buying an IPO especially on the first day.

Instead, if you really want to trade IPOs, there’s an easier, safer way.

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).

With an expense ratio of 0.61%, this 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, IPO excitement will drive the ETF even higher.

Or, take a look at the Renaissance IPO ETF (IPO). With an expense ratio of 0.61%, 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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