New IPOs - Total Market Index Funds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
jesf027
Posts: 5
Joined: Sun Apr 05, 2020 9:37 pm

New IPOs - Total Market Index Funds

Post by jesf027 »

A wave of IPOs/direct listings looks set to take place over next few months (Palantir, Snowflake, Airbnb, DoorDash, etc). How long after their public debuts does it take for these new issues to be reflected in VTI / VTSAX?
MotoTrojan
Posts: 10659
Joined: Wed Feb 01, 2017 8:39 pm

Re: New IPOs - Total Market Index Funds

Post by MotoTrojan »

VTI tracks a CRSP index so I would presume this calendar holds your answer.

http://www.crsp.org/indexes-pages/index-calendars
zrail
Posts: 87
Joined: Sun Jan 28, 2018 9:18 am

Re: New IPOs - Total Market Index Funds

Post by zrail »

One of CRSP’s criteria is whether 5 percent of US equity funds hold the security. This will obviously be false for IPOs. Another criteria is that securities in the index must have at least 12.5% free float, IPOs get an exception to 10%. Recent tech IPOs have not floated that many shares. CRSP has a committee that can approve exceptions as well.

You can see all of their methodology here: http://www.crsp.org/files/Equity-Indexe ... uide_0.pdf
Angst
Posts: 2429
Joined: Sat Jun 09, 2007 11:31 am

Re: New IPOs - Total Market Index Funds

Post by Angst »

MotoTrojan wrote: Sun Aug 30, 2020 11:27 am VTI tracks a CRSP index so I would presume this calendar holds your answer.

http://www.crsp.org/indexes-pages/index-calendars
It looks to me that for funds tracking CRSP cap-based equity indexes (VTI, e.g.), some IPO's can qualify to be added more quickly than just at the quarterly rebalancings:
The CRSP wrote:
INITIAL PUBLIC OFFERINGS
A new security resulting from an IPO is considered for inclusion after trading regular-way for five days on an exchange of interest. Total company market capitalization is calculated using the closing price and shares known on the first day of trading.

If the offered security’s total company market capitalization is at least as large as the breakpoint of the CRSP US Small Cap Index, then it is eligible to be added to the appropriate indexes after the close of the fifth day of trading as a fast-track IPO. The security must also pass the eligibility and investability screens (however, for fast-track IPOs, the minimum FSO requirement is 10 percent, rather than 12.5 percent), as stated in the Creating the Index-Eligible US Equity Market Universe section of Chapter 2. Otherwise, the security is not immediately added to indexes but is reviewed for inclusion at the next regularly scheduled quarterly ranking.
Source: http://www.crsp.org/files/Equity-Indexes-Methodology-Guide_0.pdf#p21
Post Reply