What is an Initial Public Offering (IPO)?
An initial public offering occurs when a company sells its shares to the public for the first time. This process transforms the company into a publicly listed one after being private. Companies seek to conduct an IPO to raise capital, pay off current investors, and facilitate access to capital in the future.
Investing in International Initial Public Offerings
You can find news about international initial public offerings in various places ranging from media for prominent issues to IPO websites that provide detailed listings.
Nasdaq provides the most popular list of IPOs. The list includes many foreign IPOs, along with performance indicators for IPOs. Companies like Reuters provide IPO news covering all countries worldwide. You may want to follow these sources to find new international IPOs. However, you should delve into the details of each company before making a decision.
Investors wishing to invest after an IPO can look at exchange-traded funds (ETFs) and mutual funds specializing in foreign IPOs. These funds must report their holdings quarterly, including any new additions. This makes them good sources for a list of large and notable IPOs around the world.
You may need an international brokerage account to invest directly in certain foreign IPOs. This will depend on where the listing takes place. Many major brokers like TradeStation and Interactive Brokers provide access to hundreds of markets. In other cases, the securities may be dual-listed in the United States, or they may use American Depositary Receipts (ADRs). These receipts allow you to purchase shares through most brokerage accounts in the United States.
International IPO Funds
The easiest way to invest in international IPOs is through ETFs and mutual funds. Both provide access to hundreds of companies in one security.
The Renaissance International IPO ETF (NYSE: IPOS) is the most popular option for those looking for exposure to foreign public companies before they enter core equity portfolios. The fund includes newly public companies using the Renaissance International IPO Index as its benchmark.
Large IPOs are added rapidly. The rest are added during quarterly reviews. Companies that have been public for two years are removed in the next quarterly review.
The fund had an expense ratio of 0.80% as of September 2021. The largest portion of assets is concentrated in China (44.4%), Japan (10.6%), and Germany (9.7%). The largest holdings include companies such as SoftBank Corp (10.11%), Meituan-Dianping (9.39%), and Nexi (4.21%). The fund was down 16.85% year-to-date as of September 30, 2021. During the same time, the S&P 500 rose by 17.03%.
Note: Another popular option is the First Trust International IPO ETF (NYSE: FPXI). It is a market-cap weighted portfolio that measures the performance of the top 50 non-U.S. companies. These companies include those in emerging markets. They are ranked quarterly using the IPOX Global Composite Index. The fund’s expense ratio is 0.7%.
Other Considerations
International investors should keep in mind that IPOs and foreign IPOs carry several risks. Newly public companies often lack a long track record. They are often newer compared to major stocks. You will have less data to rely on in your evaluations.
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International companies come with higher risks than local companies. They involve political risks and currency risks, in addition to tax concerns related to profit distributions and other income.
Many international initial public offering (IPO) funds and mutual funds focus on specific countries, industries, or companies. This can depend on how they are constructed, which means they may offer limited diversification.
Foreign IPO funds often have higher expense ratios than traditional index funds due to the active nature of selecting and maintaining a balanced portfolio.
Source: https://www.thebalancemoney.com/basic-facts-about-international-ipos-4140085
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