Table of Contents
Table of Contents

International IPOs and Investing

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Initial public offerings are often referred to as "IPOs." They tend to raise a lot of excitement among investors. Snap Inc.'s IPO (SNAP) got a lot of attention because of the popularity of the Snapchat app in 2017. More popular companies such as Beyond Meat, Uber, and Lyft followed suit with their own IPOs.

Most investors tend to focus on domestic IPOs because they often know the brands. But those who focus solely on the U.S. might be missing chances in international markets.

Key Takeaways

  • It's referred to as an initial public offering (IPO) when a company shifts from being privately held to offering shares for sale to the public.
  • You can look to Nasdaq, news outlets, ETFs, mutual funds, or international brokerage accounts for foreign listings to learn about IPOs.
  • Investing in foreign IPOs requires extra care. They may be riskier, less diversified, more expensive, and not as well documented as U.S. IPOs.

What Is an IPO?

Initial public offerings occur when a company sells shares of its stock to the public for the first time. The process transforms a privately held company into a publicly-traded company. Companies pursue IPOs to raise capital, pay off existing investors, and make access to capital easier in the future.

Shares trade freely in the open market after the IPO. The price of the shares and their number decide the company's market value.

Note

The most well-known IPOs are U.S.-based tech companies such as Google and Meta (formerly Facebook). But there are all kinds of companies that undergo an IPO process around the world.

Biotechnology companies often need a great deal of capital to bring new products to market. This need for funds makes an IPO an attractive prospect for them. Many tech companies undergo IPOs to pay off existing investors, such as venture capital firms who invested in the company while it was still private.

A company that undergoes an IPO must file a prospectus. This report details its operations and its recent financial history. These documents are lengthy, but they're required reading for investors. They're filed with the U.S. Securities and Exchange Commission (SEC) under Form S-1 in the U.S. or in amended form in S-1/A filings. They may appear under other names in other countries.

Investing in International IPOs

You can find news about international IPOs in places ranging from the news media for popular issues to IPO websites that offer detailed lists.

Nasdaq provides the most popular list of IPOs. It includes many foreign IPOs, as well as IPO performance metrics. Companies such as Reuters provide IPO news covering all countries around the world. You may want to keep an eye on these news outlets as sources for finding new international IPOs. However, you should dive deeper into the details of each company before making a decision.

Investors who are willing to invest after the offering occurs can also look at exchange-traded funds (ETFs) and mutual funds focused on foreign IPOs. These funds must report their holdings each quarter, including any new additions. This makes them good sources for a list of large and popular IPOs around the world.

You may need an international brokerage account to invest directly in some foreign IPOs. It would depend on where they're listed. Many large brokers, such as TradeStation and Interactive Brokers, offer access to hundreds of markets. In other cases, securities can be dual-listed in the U.S., or they might use American depositary receipts (ADRs). These receipts allow you to buy shares through most U.S. brokerage accounts.

International IPO Funds

The easiest way to invest in international IPOs is with ETFs and mutual funds. Both provide access to hundreds of companies in a single security.

The Renaissance International IPO ETF (NYSE: IPOS) is the most popular option for those looking for exposure to non-U.S. newly public companies ahead of their inclusions in core equity portfolios. The fund includes newly public companies using the Renaissance International IPO Index as its underlying index.

Sizable IPOs are added on a fast-entry basis. Others are added during quarterly reviews. Companies that have been public for two years are removed at the next quarterly review.

The fund had a 0.80% expense ratio as of September 2021. The largest percentage of assets are 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 on September 30, 2021. The S&P 500 gained 17.03% in that same time.

Another popular option is the First Trust International IPO ETF (NYSE: FPXI). It's a market capitalization-weighted portfolio that measures the performance of the top 50 non-U.S. companies. They include those that are domiciled in emerging markets. They're ranked quarterly using the IPOX Global Composite Index. The fund has an expense ratio of 0.7%.

Other Considerations

International investors should keep in mind that IPOs and foreign IPOs carry many risks. Newly public companies lack a long track record. They're often new corporations compared to blue-chip stocks. You'll have less data on which to base your judgments.

International companies may come with higher risks than domestic companies. They entail more political risks and currency risks, as well as taxation concerns for dividends and other income.

Many international IPO ETFs and mutual funds are focused on certain countries, industries, or companies. It can depend on the way they're constructed. This means they may offer limited diversification.

Foreign IPO ETFs often have higher expense ratios than traditional index funds due to the active nature of identifying them and keeping the portfolio rebalanced.

Article Sources

  1. U.S. Securities and Exchange Commission. "What Is a Registration Statement?"

  2. U.S. Securities and Exchange Commission. "Investor Bulletin: American Depositary Receipts."

  3. Renaissance Capital. "Renaissance International IPO ETF Holdings."

  4. Renaissance Capital. "Renaissance International IPO ETF."

  5. Macrotrends. "S&P 500 Index—90 Year Historical Chart."

  6. First Trust. "First Trust International Equity Opportunities ETF (FPXI)."