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Many 2021 IPOs have fallen flat on their first day of trading, but that’s changing, ETF manager says

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It’s been a topsy-turvy year for initial public offerings.

Though public market debuts are pacing for a record year, with 279 IPOs raising $96 billion in 2021, many have fallen flat after their first trading days as investors worried about growth companies’ staying power amid rising interest rates

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The Renaissance Capital IPO ETF (IPO) is up less than 6% year to date and still far off its mid-February peak.

But things have recently turned around, Renaissance Capital co-founder Kathleen Smith told CNBC’s “ETF Edge” on Monday.

“There’s definitely been an improvement,” Smith said. “The aftermarket returns are positive now for the last three months. I think it’s about 12%, which is very good. … If you drag along the full year, they’re just about breakeven now.”

Her firm’s flagship ETF, IPO, has reflected that improvement. The ETF is up nearly 10.5% in the past three months versus nearly 7% for the S&P 500, with investors returning to growth investments as rates decline.

“We’re in a market where investors just want growth. They’re ignoring anything that’s not growth,” Smith said. “So investors are willing to pay a lot of money for growth, but … the real return is negative on any kind of fixed-income product. So in terms of yield, you really value a company that can produce growth and cash flow. Interestingly enough, unlike 2000, the cash flow’s very good on most of these companies.”

The ETF’s top holdings are Snowflake, Palantir, Cloudflare, Datadog and Coinbase. All five are above their listing prices, though Coinbase is only by about 3%.

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