ETF Waiting for IPOs

March 17th at 3:00pm by Tom Lydon

Initial public offerings (IPOs) have not been flying on the shelf lately, so how long can the related exchange traded fund (ETF) hang in there? It seems that the action might not take long to pick up, as the majority of analysts and bankers feel certain spring will bring more life to the IPO market.

Lynn Cowan for The Wall Street Journal reports that April and May are expected to be more active and there is even talk the level of IPO issuance could return to what was seen before it froze in the 2008 financial crisis.[Are Specialty ETFs Right For You?]

In terms of pricing and performance, February wasn’t a knockout month. Almost half the deals that were completed, seven, ended up cutting their prices before they launched. But experts say that price is not the focus. It’s about getting the product to the public market.[IPO ETF: Your All-Access Pass To A Hot Market.]

Stephen Grocer for The Wall Street Journal reports that after trailing Asia the past two years, U.S. has reclaimed its place as the top region in terms of IPO issuance. Through the first two months, the U.S. has had 24 IPOs, up 85% from the year-earlier period’s 13 deals, with the amount raised up to $8.1 billion from $1.9 billion.[Play The IPO Revival With This ETF.]

  • First Trust IPOX-100 Index Fund (NYSEArca: FPX) - top holdings include Visa (NYSE: V), Philip Morris (NYSE: PM) and Time Warner Cable (NYSE: TWC); its top two sectors are consumer discretionary (35%) and financials (19.8%); energy gets 12.7%. Technology accounts for 6.7% of the ETF; $18.3M in assets.

The FPX tracks an index of the 100 top IPOs in the United States, measuring their performance by market cap. The fund rebalances quarterly. IPOs are added in on their seventh day of trading, to capitalize on a long-term “buy and hold” perspective. On their 1,000th day, they’re shuffled out and new stocks are added.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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