ETF Investors Want Visa To Be Where They Are, But They'll Have to Wait

Visa is a multi-billion dollar global credit card business and despite the initial public offering, the largest in U.S. history, the company will not be jumping into any financial exchange traded funds (ETFs) just yet.

Jefferey Ptak of Morningstar says that Visa will likely follow in Mastercard's (MA) footsteps, getting picked up by financial ETFs, it's just a matter of time.

John Spence for MarketWatch reports that the Visa (V) IPO raised about $18 billion last week, when the shares were priced at $44 above expected range. The stock jumped 28% the first day of trading and closed at $59.73 for Monday's session.

One ETF Visa could likely gain entree to sooner rather than later is the First Trust IPOX - 100 Index (FPX), which tracks an index of the top 100 IPOs. The fund adds IPOs on their seventh day of trading, to allow the excitement to fade some so that it doesn't create volatile movements in the fund. Visa's IPO took place on March 19, and the seventh trading day will be Friday. Keep an eye out.

Mastercard is a major holding of FPX, at 5.3% of assets. Someday, Visa also could be joining Mastercard in the iShares Dow Jones US Financial Sector (IYF).

Visa's Close to Going Public, and It Could Land In IPO ETF

Visa is readying to take the plunge and go public - does this mean it could be making an appearance in the IPO exchange traded fund (ETF)?

This IPO is coming at an interesting time for the financial markets, says Eric Dash for the New York Times. The nation's largest credit card network, however, doesn't seem to be daunted as it prepares to sell as much as $17.1 billion of stock in late March.

Visa, and its rival, MasterCard, have been thriving as Americans bust out the plastic to pay for nearly everything. And the financial crunch hasn't been hurting them because they don't actually make the loans - they just process the transactions for the banks that do. The IPO could actually help its member banks, because it will generate a windfall for them if everything goes according to plan.

Since Visa's IPO is the largest-ever, could the IPO-tracking ETF, U.S. IPOX 100 Index Fund (FPX), soon be adding the company to its rotation after the initial rush? The fund could surely use a boost: it's down 10.2% year-to-date.

FPX is designed to measure the 100 top IPOs in the United States, measuring their performance by market cap and rebalancing quarterly. They're added to the index on their seventh day of trading and bumped out on the 1,000th day.

What's Behind Malaysia ETF's Big Leap?

Malaysia's economy is hopping along, if the performance of its exchange traded fund (ETF) is any indication.

The iShares MSCI Malaysia (EWM) was up 7.7% last week. What's going on?

The country's currency, the ringgit, reached its strongest level since November 1997, Chan Tien Hin of Bloomberg reports. The key index, the Kuala Lumpur Composite Index, posted a fifth-straight record, stocks jumped higher and there was speculation that a possible early general election may drive even more gains.

Some say that Malaysia could be viewed as a safe haven while the United States economy works through its issues.

Meanwhile, according to Forbes, Malaysia's securities watchdog introduced an over-allotment option and price stabilization for initial public offerings (IPOs) in the country. That will allow issuers to sell investors more shares than originally planning so that demand for an IPO can be met efficiently.

Using ETFs to Track IPOs

Getting in on an initial public offering (IPO) can be a hit-or-miss proposition -- how do you know what's going to take off and stay taken off vs. what's going to peter out after an initial rush of excitement? What's the next Google and what's the next Krispy Kreme? Joseph Schuster, the creator of the index that U.S. IPOX 100 Index Fund (FPX) exchange traded fund (ETF) tracks, believes he has identified a solution to the problem.

This ETF tracks an index of 100 top IPOs in the U.S., measuring the performance of them by their market cap and rebalancing quarterly. They're added into the index on their seventh day of trading in order, Schuster says, to capitalize on a long-term "buy and hold" perspective. On their 1,000th day, it's time to move on and the once hot new things are bumped out of the index in favor of a new IPO.

"Only a few IPOs are really interesting from an investor's perspective. Ninety percent of them turn out to really be dogs, underperformers. We provide a stable solution to the problem," Schuster says.

The IPOX 100, launched in April 2006, is the first offering to track U.S. IPOs, but there's a whole line of IPO indexes that IPOX-Schuster offers that target IPOs around the world. Later in 2006, Dow Jones launched the Dow Jones STOXX IPO indexes in the European market. They track the performance of European IPOs over three time periods: 3 months, 12 months and 60 months. A key difference between STOXX and IPOX is that STOXX includes IPOs on the day after their initial offering.

While IPOX has more exposure in large-cap IPOs, Schuster believes IPOs ultimately should be seen as a separate asset class because their returns and risks are different than that of the average, everyday stock. "We think the industry makes a mistake in not classifying them separately, and that's what IPOX is all about."

Global IPOs Enhance BRIC ETFs Offerings

Exchange traded funds (ETFs) that track the markets of Brazil, Russia India and China  (known as the "BRIC" block) and other emerging-market countries received some good news recently.  For one, seven out of the top 10 IPOs in the third quarter were from emerging markets. Nearly half of the $57 billion raised globally by IPOs in the latest quarter was by companies in the so-called “BRIC” countries of Brazil, Russia, India and China, which produced a record 118 IPOs, reports Joanna Chung for the Financial Times. The Asia-Pacific region, and in particular China and Hong Kong, had the major share in terms of both the number of IPOs completed as well as the money raised.

One example is Petro-China, the state-owned oil and gas group, that launched an initial public offering (IPO) listing in Shanghai in a deal that could raise more than $9 billion, says Carl Delfeld for ETF XRAY. Grupo Clarin, Argentina's largest media group raised more than $500 million on the London Stock Exchange on Friday.

The BRIC ETFs that could benefit from this include the Claymore/BNY BRIC (Brazil, Russia, India, China) ETF (EEB) and the SPDR S&P BRIC (Brazil, Russia, India, China) 40 ETF (BIK). Currently, EEB is up 62.2% year-to-date, and BIK is up 22.4% for the last three months, having launched in June.

For full disclosure, some of Tom Lydon's clients own EEB.

Visa Files to Go Public, Could Be Included in IPO ETF

The First Trust IPOX-100 Index (FPX) exchange traded fund (ETF) that tracks the top 100 U.S. FPX could see a new holding in its future now that the Visa IPO is one step closer to creation. Currently, FPX is up 5.6% year-to-date and has outperformed the S&P 500 for the year.

Visa plans to seek approval from member financial institutions, which would pave the way for an IPO early next year, according to Tate Dwinnell for Self Investors. The biggest beneficiaries when Visa completes its IPO process will be major U.S. financial institutions such as Bank of America (BAC), Wells Fargo (WFC) and JPMorgan Chase (JPM). They stand to reap hundreds of millions of dollars in capital gains if they sell part of their stakes.

After Mastercard (MA) completed its initial public offering, Citigroup (C) and JPMorgan Chase (JPM) cashed out of their holdings and took one-time gains worth more than $100 million. If the success of the Mastercard (MA) IPO is any indication, the Visa IPO, which is the world's largest credit card company, will be successful as well. This epic IPO filing is definitely one to watch.

IPO ETF on Vacation; Activity Should Resume in the Fall

Although the initial public offering (IPO) market is taking its usual end-of-summer vacation, when it gets back to work in the fall, investors could see more activity in the exchange traded fund (ETF) that tracks the top 100 U.S. IPOs. That ETF is the First Trust IPOX-100 Index (FPX). Currently, FPX is up 2.9% year-to-date.

As of Aug. 15, 115 offerings with a value of more than $22 billion are in the pipeline, according to Amy Reeves for Investor's Business Daily. However, analysts are concerned that the market volatility that spread into recently released IPOs also could affect the upcoming ones. The strongest sectors with IPO filings are technology, biotech, oil and gas. The average IPO value is more than $200 million, which is up from 2006 when the average IPO value was $180 million.

ETFs Track MSCI Indexes - IPO Filed

Many of the available global exchange traded funds (ETFs) track MSCI (Morgan Stanley Capital International) indexes. MSCI provides investment tools to equity, fixed-income and multi-asset class investment choices worldwide. Aaron Siegal for Investment News reports Morgan Stanley (MS) plans to sell a minority interest in an initial public offering of the subsidiary, MSCI, by the end of the year.

What will this do for the ETFs that track the MSCI indexes? There shouldn't be much of an effect. Some of the MSCI ETFs include:

• iShares MSCI EAFE (EFA)
• iShares MSCI Emerging Markets (EEM)
• iShares MSCI Canada (EWC)
• iShares MSCI Japan (EWJ)

Perhaps the First Trust IPOX-100 (FPX) will pick this up as it includes IPOs.

IPO Players Emerge; Who Will Be the Next ETF Winner?

As new Initial Public Offering (IPO) players emerge in the market, you can bet you will see lots of activity in the exchange traded fund (ETF) "fan" that tracks some of them. The First Trust IPOX (FPX) tracks the 100 largest U.S. IPOs. As shown in the chart below, FPX is currently up 12% year-to-date. Although it is on the decline, FPX is still well above the 200-day moving average.

Be careful when investing in IPOs, as many of them look promising in the beginning but fall after their initial honeymoon period is over and produce blah earnings reports, advises S.J. Chaplan for The Motley Fool. If you're interested in mutual funds, the IPO Plus Aftermarket (IPOSX) also invests in certain IPOs.

From IPO to ETF: The Case for Facebook

If the rumors are true, then social-network giant Facebook might be included in an exchange traded fund (ETF) soon. However, it's a long road ahead before that happens.

What perked our ears is the post by Tate Dwinnell of Self Investors that says Facebook recently posted an advertisement for a stock administration manager. This indicates that Mark Zuckerberg and his top executives are toying with the idea of an initial public offering (IPO) filing. The other rumor floating around is that Microsoft will acquire Facebook. Either speculation is a strong possibility.

If Facebook filed for an IPO, it would create the first sale of its common shares to investors on a public stock exchange. After becoming public, Facebook's enormous market capitalization would make it attractive to the First Trust Dow Jones Internet Index (FDN). In turn, this would help the acceptance of the Facebook IPO, which may enhance its performance further. In addition, there's the possibility that the Facebook IPO could be tracked by the First Trust IOPX-100 (FPX), which follows the largest U.S. IPOs. Of course, it would have to meet FPX's requirements.

IPO ETFs Here To Stay

Along with exchange traded funds (ETFs), 2006 was an opportune year for initial public offerings (IPOs). The amount of money raised jumped 19%, to $38 billion and through December 8, they gained 24%. BusinessWeek.com  reports that the market looks just as strong going into 2007 with upstarts having strong growth potential looking more appealing.

The First Trust IPOX-100 Index (FPX) is an ETF launched last April that invests in IPOs. The private equity boom will keep feeding the IPO market directly. The financial sector had the most action with 48 deals valued at $7.5 billion. Technology IPO's should remain on a steady increase as telecom did the same this year.

New ETF Tracks IPOs (FPX)

The First Trust IPOX-100 (FPX) will track the performance of the biggest US IPOs. As new ETFs are developed its nice to see one that tracks an index that's ween around for a while. Google, Viacom and Genworth Financial are the top three holdings.

Greg Newton from Naked Shorts points out the main characteristics of this ETF:

• IPOs come into the IPOX Composite at their seventh trading day after going public and automatically exit after 1000 days, or roughly four years trading. Admission is, however:
• “Subject to satisfying size, float and certain initial trading characteristics.” Among those initial trading characteristics: IPOs that rise more than 50% on their first day are excluded.
• The IPOX US-100 is a subset of the IPOX Composite and is adjusted quarterly. Weightings are capped at 10 percent in the US-100 as well as the other IPOX subsets: The US-30, and the Europe-100 and Europe-30. Those sets seek “to be a comprehensive representation of the well-performing and most liquid universe of the largest IPOs.”

A full detailed fact sheet can be found at the IPOX Schuster site.