The initial public offering (IPO) market has long provided investors with access to innovative companies transitioning from private to public ownership. However, the volatility and complexity of IPO investing can make it challenging for individuals to navigate. That’s where the Renaissance IPO ETF (Ticker: IPO) comes in—a passive, index-based exchange-traded fund designed to provide diversified exposure to newly-public US companies, or the “new stock asset class.” In this article, we explore the key characteristics of and index methodology behind the IPO ETF.
Characteristics of New Stocks
The US IPO market is a vibrant ecosystem of innovation. New stocks, or stocks that have been trading for less than three years, are often drivers of progress across various industries. We expect to see this trend amplified in the coming months and years as advancements in artificial intelligence, cloud computing, and other disruptive technologies fundamentally alter the market landscape.
The chart below illustrates the level of activity in the US IPO market over recent years, highlighting the cyclical but resilient nature of new issues, and the scale of opportunities available to investors through vehicles like the IPO ETF.
Investing in individual IPOs involves risks, including price volatility driven by market sentiment, lock-up period expirations, and limited operating histories. The IPO ETF aims to address these risks by holding a diversified portfolio of new stocks, seeking to balance potential returns with reduced exposure to single-company performance.
Investment Strategy: Passive and Diversified
The IPO ETF uses a passive investment strategy, seeking to replicate the performance of the Renaissance IPO Index (before fees and expenses) rather than relying on active stock selection. This approach prioritizes cost efficiency and transparency, making it an attractive option for both retail and institutional investors.
The IPO ETF holds US companies that have gone public within a rolling three-year window and meet specific criteria, outlined in the IPO Index methodology. This focus targets stocks in their most transformative phase, before they become established public entities.
The portfolio is diversified across multiple sectors, with representation that reflects the composition of the IPO market. This diversified approach aims to reduce single-stock risk while maintaining exposure to the broader growth trends driving US markets.
Index Methodology: Tracking the IPO Market
The Renaissance IPO Index (IPOUSA) is a rules-based benchmark designed to capture about 80% of the total market capitalization of the universe of companies that have gone public within the last three years.
Key components of the Index’s methodology include:
- Eligibility Criteria: To be included, a company must have completed its IPO on a major US exchange within the past three years. Additionally, companies must meet certain size, liquidity, and free float requirements.
- Weighting Approach: Constituents are weighted based on free float-adjusted market cap, and individual constituents are capped at 10%. This approach prioritizes more liquid names and promotes diversification, allowing smaller constituents to contribute more meaningfully.
- Rebalancing Schedule: The Index is rebalanced quarterly to incorporate new IPOs and remove companies that have become “seasoned equities” (those that have been trading longer than three years). This process keeps the ETF aligned with the evolving IPO market.
This methodology ensures investors gain broad, representative exposure to the US IPO market while maintaining the discipline of a passive strategy. Access the full methodology here.
Key Characteristics: Large/Mid-Cap Portfolio with a Tilt Towards Heavy-Hitting Sectors
By nature of its goal to capture a cross-section of the largest, most liquid names in the US IPO market, the IPO ETF is often tilted towards the most active sectors for new issuance. In recent years, those have been sectors like technology, consumer, financials, and healthcare.
As of 5/30/25, the IPO ETF was most heavily invested in the tech sector (33.1% by weight) and the consumer discretionary sector (19.7%). This underscores its alignment with high-growth industries, and reflects top holdings in chipmakers, tech platforms, fast-growing restaurants, and sizable leisure plays.
The IPO ETF’s market cap distribution further highlights its diversified approach. Significant exposure to large-cap companies (>$10B; 68.7% by weight) and mid-cap companies ($2B–$10B; 28.1%) with some exposure to some small-cap companies (<$2B; 3.2%) provides a balance between growth potential and stability.
How the IPO ETF Stands Out
The IPO ETF focuses specifically on new stocks, distinguishing it from most benchmarks, which can take months or years to consider these companies for inclusion. Unlike actively managed funds, which may incur higher fees and rely on discretionary stock selection, the IPO ETF’s passive strategy aims for cost efficiency and consistency. Its three-year rolling window also sets it apart from other IPO-focused or growth ETFs, which often include more established public issuers.
Relative to direct IPO investing, the IPO ETF eliminates the need for individual company research or access to IPO allocations, offering a streamlined approach to the IPO market. This structure may appeal to investors seeking systematic exposure without the complexity of selecting individual IPOs.
Who Should Consider This ETF?
The US IPO ETF is designed for growth-oriented investors who believe in the long-term potential of innovative, newly-public companies. It may be a good fit for:
- Investors seeking exposure to high-growth and disruptive companies in sectors like technology, consumer innovation, and healthcare.
- Those looking to diversify their portfolios with an asset class that complements traditional large-cap or value-focused funds.
- Financial advisors building portfolios for clients with a higher risk tolerance and long-term investment horizons.
The new stock asset class may represent a portion (e.g., 5-10%) of a diversified portfolio, complementing large-cap or value-focused investments, depending on an investor’s objectives and risk profile. Our case study on IPO exposure shows how incorporating the IPO ETF may benefit or otherwise influence a diversified portfolio.
Risk Considerations
Investing in newly-public companies involves risks. IPOs can experience price volatility due to market sentiment, limited financial histories, and events such as lock-up period expirations, which may allow insiders to sell shares. External factors, including interest rate changes or regulatory developments, may also affect IPO performance.
The IPO ETF seeks to mitigate these risks through diversification and a rules-based index methodology, limiting the impact of individual companies or sectors.
Conclusion
The Renaissance IPO ETF provides a systematic, cost-efficient means of investing in the new stock asset class. By tracking a diversified, rules-based index, the IPO ETF offers exposure to the IPO market while addressing some of the risks associated with individual IPO investments. Its sector and market cap distributions align with the growth-oriented nature of recent IPOs, while its passive strategy ensures accessibility and transparency.
Investors interested in the ETF can access its fact sheet, performance data, and holdings on our website, or contact our team for further information.
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus and/or summary prospectus with this and other information, please visit the document center at etfs.renaissancecapital.com. Read the prospectus carefully before investing. Foreside Fund Services, LLC, is the distributor for the ETFs. For additional information, contact Foreside at 1-866-486-6645.