Reported by IndexUniverse’s Devon Layne and Olly Ludwig
Kudos to IU for scooping the news media–
Renaissance Capital, a research and investment management firm known for its IPO Plus Aftermarket Fund, filed regulatory paperwork requesting permission to offer a broad swath of ETFs targeting U.S. and non-U.S. stocks and bonds, with the first to be a fund that tracks its own Renaissance IPO Index.
The initial exchange-traded fund it is planning, called the Renaissance IPO ETF, will follow the performance of the U.S. IPO market through the use of an index that will be composed of a revolving list of qualified IPOs that change on a two-year rotation. The firm plans to market ETFs that are based on its own indexes.
[MarketMuse Editor’s note: we can only hope that FB incident and subsequent clog in IPO pipeline doesn’t put too much of a crimp in this initiative.]
Indeed, Greenwich, Conn.-based Renaissance’s “exemptive relief” filing with the Securities and Exchange Commission also requests permission to roll out funds with “affiliated indexes”—ETF lawyer-speak for in-house indexes. The petition with the SEC cited as precedents a number of firms that market self-indexed funds, including Russell and Van Eck Global.
The paperwork thus seeks to establish Renaissance’s presence in the dynamic ETF market, where total assets are now more than $1.150 trillion in over 1,450 securities. Moreover, the firm, by requesting to use its own indexes, is tapping into one of the newer trends in the ETF market that industry sources say reflects a desire among ETF sponsors to stop paying costly index-licensing fees.
The firm also said that it plans to roll out its initial ETF as part of the trust under which its IPO Plus Aftermarket Fund (IPOSX) is being marketed. That existing mutual fund has an annual expense ratio of 2.50 percent and has just over $8 million in assets, according to information posted on The Street.com.
It’s pretty much a foregone conclusion that the Renaissance IPO ETF will be considerably cheaper than the mutual fund, particularly since the new fund will face competition from much cheaper existing ETFs that already ply the world of initial public offerings.
For example, the First Trust IPO Fund (NYSEArca: FPX) has a net annual expense ratio of 0.60 percent. FPX, which was launched in April 2006, has about $17.3 million in assets, according to data compiled by IndexUniverse.
The ETF market provides a more efficient way for investors to gain exposure to initial public offerings than seeking to, say, get a piece of an individual IPO through a broker.
But IPOs are generally considered relatively risky, as many companies at the IPO phase of their development are relatively small and are thus more volatile than larger established companies that have longer histories as public corporations.
Exemptive relief grants ETF firms exception to sections of the Investment Act of 1940 and is just the first step in the path to launching ETFs. It often takes at least six to 12 months from the date of the initial filing for a company’s first ETF to hit the market.