This fund tries to pick the best IPOs, here are the companies to watch

Newly public companies Zoom Video Communications (ZM), PagerDuty (PD) and Beyond Meat (BYND) posted their first quarterly earnings reports after the bell Thursday and all beat Wall Street’s expectations.

But not all companies that have recently gone public have fared so well. And investors don’t have much patience for losses, according to Renaissance Capital co-founder Kathleen Smith, who manages The Renaissance IPO ETF (IPO).

“It’s very challenging to figure out the valuation, which means we are going to see and have already seen wide swings in the prices,” she said, noting that the earnings results for Uber (UBER) and Lyft (LYFT) were expected, but “we still don’t know and the companies have said they don’t know when they’re going to be profitable,” said Smith, adding that rattles some investors.

The Renaissance IPO ETF (IPO) currently owns Uber, Zoom, Pinterest (PINS), and Lyft. Launched in October 2013, the fund adds public companies on a quarterly basis but can add larger IPOs (the top 40% of the market cap of the IPOs that have come out) on a fast-entry basis, typically about five days after the IPO is priced. Smith said Beyond Meat now has a market cap large enough to be added to the fund on a fast-entry basis. So far this year the ETF, which is rebalanced each quarter, has outperformed the broader market.

The ETF is “oriented to the largest most liquid IPOs because our studies show the larger IPOs tend to perform better over time,” said Smith.

Enterprise software is attractive

With more big names planning to go public this year, Smith said she is eyeing cybersecurity firm CrowdStrike and corporate messaging system Slack. While not as flashy or well known as some of the other consumer-facing companies that went public this year, she likes them both because they are “enterprise related and subscription based,” and have high-growth potential.

Fitness company Peloton, which filed IPO paperwork Wednesday, is also “an interesting one” to Smith. While it’s a consumer company that sells $2,000 bikes, investors “are going to look at the fact that you’ve got a subscription associated with it and can that recurring revenue help investors with turbulent times at the company.”

Which company is Smith not so keen on? WeWork. Smith said the path to profitability is too unclear at this time. It has about $2 billion in revenue and $2 billion in losses and a $50 billion valuation at its last round. “I don’t know how we’re going o figure this one out,” she said.

But Smith admits that not all firms in the fund are going to be hits. Snap (SNAP), for example, was not a strong performer when it was a part of the fund, while others included in the index at the time were. “The index has performed because some of the ones you don’t expect can do very well... [and] overcome maybe some of the more turbulent ones.”

Joanna Campione is a producer at Yahoo Finance.

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