Patience is a Virtue When Looking Toward the Future

Suzanne Cosgrove

Suzanne Cosgrove


How do you run a business based on IPOs when the global economy is contracting? Stay calm and look forward to the next generation of stocks.

Not surprisingly, during a pandemic and U.S. economic slump, the current calendar of U.S. initial public offerings is slim, but Josef Schuster, founder and CEO of the Chicago-based index company IPOX Schuster LLC, is undaunted.

IPOX Schuster designs indexes that are tied to the performance potential of global IPOs and company spin-offs.

The onset of the coronavirus in the first quarter slowed what had promised to be an active first half of 2020. “We were expecting a wave of activity in ETFs,” as well as some IPOs, said Drew Voros, the editor-in-chief of “The filings are out there,” he said, “But it’s like going sailing in rough seas.”

How do you do guidance given the uncertainty of a pandemic’s outcome? “It’s a big problem in every market,” Voros said.

Schuster himself remains sanguine. “It’s not really a concern,” he said, adding that he expects the IPO market will come back in the third or fourth quarter of 2020.

He said if you look at a portfolio that combines IPOs and spin-offs, like the IPOX 100 U.S., there is a rotational cycle between IPOs and spin-offs over four or more years. Allocation between IPOs and spin-offs depends on the respective velocities of deal flows.  

Given the current dearth of large IPOs, there now are more spin-offs, Schuster said. As an example, he cited United Technologies’s spin-off of its Otis Worldwide and Carrier Global divisions in April 2020 — the final leg of the mega-merger with Raytheon Corp. that created Raytheon Technologies Corp. 

 Over time, the IPOX100 has about a 35 percent allocation to spin-offs, with the rest in IPOs and IPO mergers and acquisitions.

“We offer a solution to a problem,” Schuster said, “which is how to invest in the next generation of stocks without losing your shirt.”

Schuster arrived in Chicago in 1996 from his native Germany for a summer internship on the floor of the CME. He ended up staying off and on for seven years, trading equity indexes and currencies for half the year and returning to Europe for the other half to complete a doctorate degree at the London School of Economics.

Throughout, Schuster remained interested in indexes and exchange trading, and he settled in Chicago to start IPOX Schuster LLC in 2004. “As a trader, you’re only as good as your last trade,” he said. “I wanted to use my expertise with indexes to form a business. … I wanted IPOX to be the S&P of the IPO market.”

Over time, the IPOX indexes have been used as the underlying basis for about a dozen exchange-traded funds, mutual funds, separately managed accounts, and a mini-futures contract listed on the CME in 2016.

All Schuster’s indexes focus on IPOs and spin-offs, classifying them as a separate asset class for a limited time after they go public, and he’s happy to educate the public about their potential.

“They are really unique performers,” Schuster said, explaining his focus on the new-issue sector. “We don’t want to be an index provider for all indexes,” he said. “It’s a unique business, very global.”

IPOX Schuster currently calculates some 120 IPOX Indexes, with $3.12 billion in total assets under management tied to the indexes. They include the IPOX 100 U.S. Index and the IPOX International (IPXI), a diversified portfolio that tracks the performance of 50 new global listings for their first 1,000 trading days.

The exchange-traded fund based on IPXI, First Trust International Equity Opportunities ETF (Ticker: FPXI), was recently ranked the best performer among IPO ETFs at 20.56 percent on a trailing year basis, according to rankings by

The IPOX 100 U.S. Index, a market cap-weighted portfolio of 100 companies, serves as an underlying benchmark for a number of exchange-traded and other financial products. The index captures about 85 percent of total market cap created through U.S. new listings and spin-off activity over four years, Schuster said.

Significantly, the IPOX 100 is the underlying index for the First Trust U.S. Equity Opportunities ETF (Ticker: FPX US), launched in 2006. It was the first exchange-traded fund in the IPO field and is the largest IPO ETF, with an estimated $1.14 billion in assets, according to

The IPOX index is diversified and “FANG-free” -– it excludes Facebook, Amazon, Netflix and Alphabet (Google). 

As of May 2020, the IPOX U.S. 100 Index portfolio holdings include the biopharmaceutical company Gilead Sciences Inc., the spun-off Otis Worldwide Corp., entertainment streamer Roku Inc., identity software company Okta, financial services company Tradeweb Markets Inc., and communications technology company Zoom Video Communications.

Although the FPX is widely followed in the IPO sector, volume and open interest has languished in the CME’s cash-settled futures contract based on the U.S. index, the e-mini IPOX 100 U.S. index futures (IPO).

Schuster said he’s looking for market makers to help give it a kick start. “Without market makers and a bit of open interest, it’s challenging,” he said.

IPOX 100 futures’ contract specs were recently amended by the CME, a move Schuster said was in response to feedback from market participants, who suggested it would be useful to have the contract more closely aligned with other e-mini equity futures traded at the exchange. 

The IPOX 100 contract trades at $10 per index point, with the minimum price increments of 0.25 index points, equal to $2.50 per contract from $5.00. 

Schuster expects the IPOX 100 futures to attract spreading against the e-mini S&P 500 and other contracts, as well as IPO hedge trading. The CME also has implemented a 50 percent fee discount on IPOX futures.

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