When I last provided an update for InvestorPlace.com’s annual exchange-traded funds contest, there was not much good news to report. My best ETFs entry — the Renaissance IPO ETF (NYSEARCA:IPO) – was off about 17% for the first quarter, primarily because of the impact of the novel coronavirus. There seemed to be little hope as the markets were deeply bearish.
But of course, this would turn out to be a bottom in the market. Fast forward to today: the IPO ETF is up a sizzling 60% (for the second quarter) and is ranked No. 2 in the contest with a year-to-date gain of nearly 30%. By comparison, the S&P 500 was up 26% and the Nasdaq posted a rise of 33% for the quarter.
The IPO ETF tracks the Renaissance IPO Index, which includes about 55 companies. Every quarter, the company conducts a review to asses which companies should be included and removed.
When the coronavirus hit, the IPO market shutdown. However, since April, activity has been perking up. In the second quarter, there have been 39 IPOs that have raised about $15 billion. Almost all of the offerings saw upsizing or higher pricing. The average return? About 68%.
With that in mind, let’s look at some of IPO’s holdings and how they performed. This will help explain why it ranks among the best ETFs to buy this year.
Why IPO Is One of the Best ETFs in 2020
- Zoom Video (NASDAQ:ZM): The company, which is a leader in video conferencing, has seen a surge in its business this year. The key catalyst has been the coronavirus, as millions of people have been working from home. In the latest quarter, revenues soared by 169% and earnings came to 20 cents a share. Zoom has had some high-profile security lapses, which resulted in lost customers. But the company has been swift in dealing with the issues. As for the full-year guidance, Zoom is forecasting revenues of $1.78 billion to $1.80 billion. By comparison, in March the outlook was for $905 million to $915 million.
- Slack Technologies (NYSE:WORK): This is another cloud company that has benefited from the work-from-home shift. Slack operates a platform that allows for collaboration and chat services. In the latest quarter, revenues jumped by 50% to $201.7 million and the company added 12,000 customers. Note that the competitive environment has been getting intense, especially as Microsoft (NASDAQ:MSFT) has ramped up its efforts with Teams.
- Moderna (NASDAQ:MRNA): The company’s shares are up 151% for the quarter, with the market cap at $23 billion. Moderna is the creator of mRNA-1273, which is a potential vaccine for the coronavirus. In mid-May, the company reported positive preliminary findings in its trials. The Department of Health and Human Services also provided $483 million in funding for the program.
- Datadog (NASDAQ:DDOG): This company has software that monitors and analyzes cloud IT environments. Because of the disruption of coronavirus, there has been a spike in demand for this type of technology. For the quarter, Datadog’s revenue increased by 87% to $131.2 million and adjusted earnings were 6 cents a share.
- Crowdstrike (NASDAQ:CRWD): The company is a cloud-first cybersecurity operator that relies heavily on crowdsourced data and artificial intelligence. The annual recurring revenue, which is a key metric for SaaS companies, shot up by 88% to $686.1 million. A key growth driver has actually been from Amazon’s (NASDAQ:AMZN) AWS cloud platform.
- Dynatrace (NYSE:DT): The company leverages AI to monitor and improve IT systems across multi-cloud environments. In just about four years, the company has attracted more than 2,700 customers. For the quarter, sales rose by nearly 30% to $150.6 million and the company reported adjusted earnings per share of 11 cents.
InvestorPlace.com’s best ETFs contest can certainly be volatile. But the performance of the IPO fund has shown that it is a good idea to have some exposure to public offerings, which often have next-generation companies with strong long-term growth potential.
Tom Taulli (@ttaulli) is an advisor and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
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