A recent addition to the Undiscovered Portfolio is the Renaissance IPO ETF (IPO).
The name and the ticker are pretty much dead giveaways as to the nature of this fund. It tracks the largest, most liquid, newly listed U.S. IPOs.
Each quarter when the ETF is rebalanced, new IPOs are added and older constituents are removed. At quarterly rebalances, constituents are weighted by float-adjusted market capitalization with a cap imposed on any weightings exceeding 10%.
In other words, no single listing, no matter how big, will exceed a 10% weighting within the portfolio.
That’s important, because too much exposure to a single stock can skew your return.
For example, the VanEckOil Services ETF (OIH) holds more than 19% of fund assets in Schlumberger (SLB). That adds a tremendous amount of single-stock risk – which is exactly what an ETF portfolio should help you avoid!
On a qualitative basis, the Renaissance IPO ETF gives investors access to exactly the new, innovative companies that are generally poised for big growth in a bull market. Sure, the ETF has trended lower along with the broader market, and that’s not unexpected.
As with all the holdings in the Undiscovered Portfolio, this ETF has no particular holding period. Instead, we will monitor the technicals to understand whether it’s a hold or a sell going forward.
However, we are taking advantage of the recent nascent uptrend in this fund.