First Trust has introduced its second ETF in Europe in collaboration with IPO index specialists IPOX Schuster.
The First Trust IPOX Europe Equity Opportunities UCITS ETF provides exposure to recent IPOs – companies such as Siemens Healthineers, which is up more than 70% since its market debut on Deutsche Börse.
Listed on London Stock Exchange and Borsa Italiana, the First Trust IPOX Europe Equity Opportunities UCITS ETF provides access to European companies that have recently floated on a public market as a result of an IPO or carve-out from an existing corporate entity.
Specifically, the fund tracks the IPOX 100 Europe Index, a modified market capitalisation-weighted index measuring the performance of the top 100 recently launched IPOs or spin-offs in Europe ranked quarterly by market capitalisation, subject to various liquidity and tradability criteria.
These criteria include a minimum market capitalization of $50 million, a free float of at least 15%, and a minimum average daily equity turnover of €2.5 million.
Companies must also be domiciled and traded on an exchange in either Austria, Belgium, Denmark, Finland, France, Germany, Italy, Ireland, Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland, the Netherlands, or the United Kingdom.
Companies must have completed at least five full days of trading in order to be eligible to enter the index and are then eligible for inclusion up until the end of their 1000th trading day. The delayed entry point is timed to avoid the heightened volatility often seen in the first few days of IPO trading, while the approximate four-year exit mark is the result of extensive back-testing analysis which has shown it to be the optimal holding period.
Individual constituent weights are capped at 10%, with the cumulative weight of all constituents with a weight greater than 4% capped at 40%. Both the index and fund are reconstituted and rebalanced on a quarterly basis.
Major positions currently include Siemens Healthineers (7.47%), Adyen (6.41%), Prosus (4.83%), Nexi (3.64%), and BioNTech (2.99%). Other noteworthy names include HelloFresh, DWS Group, Moonpig, Just Group and Valneva.
The fund is likely to appeal to investors who wish to access the growth style characteristics of the IPO market – the fund may be seen as an effective proxy for growth and innovation in the European economy – but are concerned about the stock-specific risk of trying to pick which particular IPOs will be successful.
In addition, as a function of the fund only owning recent IPOs and spin-offs, there is generally minimal overlap with traditional index funds that track mainstream equity indices as these indices typically incorporate waiting periods before new listings are added. Consequently, the fund may complement a core European equity position by helping to round out exposure, providing more complete access to the entire European equity opportunity set.
The fund trades on LSE in USD (IPXE LN) and GBP (FPXE LN), and on Borsa Italiana in EUR (EFPX IM). It comes with a total expense ratio of 0.65%.
Commenting on the launch, Derek Fulton, CEO at First Trust Global Portfolios, said: “The launch of FPXE is in direct response to the increased investor demand for pure exposure to newly listed IPOs in a low-cost tax-efficient exchange-traded structure. FPXE only owns recent IPOs and spin-offs, as a result there is minimal overlap with traditional index funds. This provides investors with more comprehensive exposure, offering access to the innovation of the European economy.”
Dr. Josef Schuster, CEO of IPOX Schuster, added: “Amid strong deal flow and significant European firms lined up to go public, exposure to the IPOX 100 Europe provides investors with a diversified, one-stop solution to access the performance European initial public offerings trading in Europe and abroad, historically an economically significant group of companies which often serve as a unique proxy for economic growth and innovation.”
The fund complements First Trust’s original collaboration with IPOX Schuster in Europe, the First Trust US Equity Opportunities UCITS ETF. Listed on LSE (FPX LN) and Euronext Paris (FPXU FP), this fund delivers what is essentially the same index strategy but applied to a universe of US stocks. It debuted in August 2015 and holds $16.5m in assets.
In the US, First Trust offers the same pair of strategies by way of the First Trust IPOX Europe Equity Opportunities ETF (FPXE US) and First Trust US Equity Opportunities ETF (FPX US) listed on NYSE Arca. This latter fund houses more than $2bn in assets.