Chinese e-commerce giant Alibaba Group has finally made its debut on the New York Stock Exchange under the symbol ‘BABA' today. The offering is the world's third largest IPO in history as Alibaba priced its shares at the upper end of the revised range of $66–$68.
Alibaba confidently raised its price range from $60–$66 just four days prior to its listing, reflecting unprecedented demand from investors. It raised about $21.8 billion, which gives BABA a total market valuation of around $168 billion. This is much higher than the valuation of $150 billion for the U.S. online e-commerce behemoth Amazon (AMZN) and $65.4 billion for eBay (EBAY).
Further, Alibaba would be one of the biggest Internet companies traded in the U.S. after Google (GOOG) and Facebook (FB). Notably, the company occupies 80% of the Internet e-commerce market in China. After several years of lackluster performance, the U.S.-listed Chinese IPO market has gathered steam this year with all the 11 companies that have gone through an IPO showing a surging (read: 4 ETFs to Tap on Upcoming Alibaba IPO).
In fact, the average U.S. return on China IPO is 37% so far this year, which is higher than many other nations, according to Dealogic. This suggests investors' renewed confidence in this corner of the IPO market. Investors seeking to take advantage of this growing segment as well as participate in the potential upside offered by the new e-commerce giant while avoiding single stock risk could find several ETFs that could make for a great play in the months ahead.
Below, we have highlighted some funds that use the fast track method to add stocks instead of waiting for the rebalancing of major equity indexes, quarterly or semi-annually. Investors should note that smaller funds are the fast fillers of Alibaba than many large-cap funds targeting broad Chinese or emerging markets like PowerShares Golden Dragon China Portfolio (PGJ) and SPDR S&P Emerging Market ETF (GMM).
First Trust US IPO Index Fund (FPX)
FPX, which tracks the IPOX-100 U.S. Index, will be the first ETF to add Alibaba in the portfolio after the close of the U.S. market on Friday. Alibaba could get heavier weights in the fund's portfolio than some well-known firms such as Kraft Foods (KRFT), Kinder Morgan (KMI) and Tesla Motors (TSLA) if the stocks double on the first day of its listing.
Holding 100 stocks, the fund is concentrated on the top two firms – Facebook and AbbVie (ABBV) – with 11.8% and 9.4% share, respectively. Other securities do not make up for more than 5.40% of the portfolio. The product has a nice mix of sectors, with the top four being consumer discretionary, information technology, healthcare and energy.
The fund has amassed $518.7 million in its asset base and charges 60 bps in annual fees. Volume is moderate as it exchanges 80,000 shares per day. The ETF surged 9.7% so far this year (read: Profit from the Booming IPO market with these ETFs).
Renaissance IPO ETF (IPO)
This ETF will find Alibaba entry into its roster as the largest holding on the fifth day of trading. It follows the Renaissance IPO Index, which holds the largest and most liquid newly listed U.S. initial public offerings. Currently, the product holds 68 securities with the largest allocation going to Twitter (TWTR) and Zoetics (ZTS) at 10.8% and 9.6%, respectively. Other firms do not hold more than 4.4% of assets.
From a sector look, technology stocks make up for more than one-fourth share while consumer staples, energy and healthcare round off the top three with double-digit exposure. The fund has attracted $29.2 million in its asset base since its debut less than a year ago and sees paltry volume of 16,000 shares per day on average. Expense ratio came in at 0.60%. The product gained 7.5% in the year-to-date time frame.
KraneShares CSI China Internet Fund (KWEB)
This product will add Alibaba within 11 days after its IPO. It provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 43 securities in its basket with double-digit allocation to Baidu.com (BIDU) and Tencet Holdings (TCEHY).
The ETF has amassed $102.7 million in AUM since its debut of more than a year ago. It charges 68 bps in annual fees from investors and sees moderate average daily volume of nearly 70,000 shares. The product surged 11.5% so far this year (read: Tap into China's Technology Potential with These ETFs).
Guggenheim China All-Cap ETF (YAO)
Though Alibaba will not find its way immediately to YAO tracking AlphaShares China All-Cap Index, the inclusion is expected before the end of this year. This is especially true as the AlphaShares addition methodology allows for the inclusion of the new stocks on the third Friday of the final month of the calendar quarter if the IPO falls within the top 20 stocks by capitalization in the index.
The product holds 249 securities in its basket and puts 43.6% of assets in the top 10 firms, suggesting modest concentration. Less than one-third of the portfolio is tilted toward financials while information technology and energy round off to the next two spots at 19.3% and 13.1%, respectively. Apart from China, the fund also allocates some portion to the securities of Hong Kong (see: all the Emerging Asia Pacific ETFs here).
The fund has managed assets worth $53.2 million while charges 70 bps in fees per year from investors. Volume is light at less than 15,000 shares a day on average. The ETF has added 4.3% so far this year.
Bottom Line
Given the prosperous Chinese IPO industry, investors could consider these ETFs in their portfolio to make the most of Alibaba's rally with lower risk.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
GUGG-CHINA AC (YAO): ETF Research Reports
PWRSH-GL DR HA (PGJ): ETF Research Reports
SPDR-SP EMG MKT (GMM): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Market News and Data brought to you by Benzinga APIsAlibaba confidently raised its price range from $60–$66 just four days prior to its listing, reflecting unprecedented demand from investors. It raised about $21.8 billion, which gives BABA a total market valuation of around $168 billion. This is much higher than the valuation of $150 billion for the U.S. online e-commerce behemoth Amazon (AMZN) and $65.4 billion for eBay (EBAY).
Further, Alibaba would be one of the biggest Internet companies traded in the U.S. after Google (GOOG) and Facebook (FB). Notably, the company occupies 80% of the Internet e-commerce market in China. After several years of lackluster performance, the U.S.-listed Chinese IPO market has gathered steam this year with all the 11 companies that have gone through an IPO showing a surging (read: 4 ETFs to Tap on Upcoming Alibaba IPO).
In fact, the average U.S. return on China IPO is 37% so far this year, which is higher than many other nations, according to Dealogic. This suggests investors' renewed confidence in this corner of the IPO market. Investors seeking to take advantage of this growing segment as well as participate in the potential upside offered by the new e-commerce giant while avoiding single stock risk could find several ETFs that could make for a great play in the months ahead.
Below, we have highlighted some funds that use the fast track method to add stocks instead of waiting for the rebalancing of major equity indexes, quarterly or semi-annually. Investors should note that smaller funds are the fast fillers of Alibaba than many large-cap funds targeting broad Chinese or emerging markets like PowerShares Golden Dragon China Portfolio (PGJ) and SPDR S&P Emerging Market ETF (GMM).
First Trust US IPO Index Fund (FPX)
FPX, which tracks the IPOX-100 U.S. Index, will be the first ETF to add Alibaba in the portfolio after the close of the U.S. market on Friday. Alibaba could get heavier weights in the fund's portfolio than some well-known firms such as Kraft Foods (KRFT), Kinder Morgan (KMI) and Tesla Motors (TSLA) if the stocks double on the first day of its listing.
Holding 100 stocks, the fund is concentrated on the top two firms – Facebook and AbbVie (ABBV) – with 11.8% and 9.4% share, respectively. Other securities do not make up for more than 5.40% of the portfolio. The product has a nice mix of sectors, with the top four being consumer discretionary, information technology, healthcare and energy.
The fund has amassed $518.7 million in its asset base and charges 60 bps in annual fees. Volume is moderate as it exchanges 80,000 shares per day. The ETF surged 9.7% so far this year (read: Profit from the Booming IPO market with these ETFs).
Renaissance IPO ETF (IPO)
This ETF will find Alibaba entry into its roster as the largest holding on the fifth day of trading. It follows the Renaissance IPO Index, which holds the largest and most liquid newly listed U.S. initial public offerings. Currently, the product holds 68 securities with the largest allocation going to Twitter (TWTR) and Zoetics (ZTS) at 10.8% and 9.6%, respectively. Other firms do not hold more than 4.4% of assets.
From a sector look, technology stocks make up for more than one-fourth share while consumer staples, energy and healthcare round off the top three with double-digit exposure. The fund has attracted $29.2 million in its asset base since its debut less than a year ago and sees paltry volume of 16,000 shares per day on average. Expense ratio came in at 0.60%. The product gained 7.5% in the year-to-date time frame.
KraneShares CSI China Internet Fund (KWEB)
This product will add Alibaba within 11 days after its IPO. It provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 43 securities in its basket with double-digit allocation to Baidu.com (BIDU) and Tencet Holdings (TCEHY).
The ETF has amassed $102.7 million in AUM since its debut of more than a year ago. It charges 68 bps in annual fees from investors and sees moderate average daily volume of nearly 70,000 shares. The product surged 11.5% so far this year (read: Tap into China's Technology Potential with These ETFs).
Guggenheim China All-Cap ETF (YAO)
Though Alibaba will not find its way immediately to YAO tracking AlphaShares China All-Cap Index, the inclusion is expected before the end of this year. This is especially true as the AlphaShares addition methodology allows for the inclusion of the new stocks on the third Friday of the final month of the calendar quarter if the IPO falls within the top 20 stocks by capitalization in the index.
The product holds 249 securities in its basket and puts 43.6% of assets in the top 10 firms, suggesting modest concentration. Less than one-third of the portfolio is tilted toward financials while information technology and energy round off to the next two spots at 19.3% and 13.1%, respectively. Apart from China, the fund also allocates some portion to the securities of Hong Kong (see: all the Emerging Asia Pacific ETFs here).
The fund has managed assets worth $53.2 million while charges 70 bps in fees per year from investors. Volume is light at less than 15,000 shares a day on average. The ETF has added 4.3% so far this year.
Bottom Line
Given the prosperous Chinese IPO industry, investors could consider these ETFs in their portfolio to make the most of Alibaba's rally with lower risk.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
GUGG-CHINA AC (YAO): ETF Research Reports
PWRSH-GL DR HA (PGJ): ETF Research Reports
SPDR-SP EMG MKT (GMM): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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