Is the IPO market the pathway out of the forest?

There is no better beacon of light for a path out of the tangled forest created by the Covid-19 virus than the ingenuity of the American people. It’s expressed in businesses large and small quickly transforming themselves into producers of PPE and the overnight migration of American finance from Wall Street to living rooms. It’s also expressed intensely in the IPO market, where a number of recently priced IPOs are addressing newly urgent healthcare, communications, and retailing issues.

The Renaissance Capital IPO Index is down only -4% year-date, compared to a -13% decline in the S&P 500 and a -27% decline in the Russell 2000. The IPO Index is up 13% since the beginning of the 2Q, compared to 9% for the S&P 500 and 6% for the Russell 2000. The Renaissance IPO ETF (NYSE: “IPO”) is designed to track the performance of the IPO Index.

Among the strongest performers are biotech Moderna (MRNA), which is developing a potential Covid-19 vaccine, Zoom Video (ZM), which is the new paradigm for personal and business person-to-person communication, and Chewy (CHWY), the online pet products retailer.

The IPO market has a high beta, but it is also populated by a unique constituency: companies that address leading edge technologies, medical therapies, and lifestyle choices. Based on our analysis of twenty years of post-crisis IPO markets, we find that IPOs outperformed the S&P 500 by 25 percentage points, on average.

If the past is a template for the future, IPOs are a leading indicator of a path out of the Covid-19 disaster.