After months of quietude, a revival of the initial public offering (IPO) sector and the broader U.S. economy has thrust the exchange traded fund (ETF) tracking this activity into the spotlight. 

The initial public offering is the first offering of stock that companies make available to investors, and many people invest in IPOs due to their potential for high growth, comments Sequoia for FavStocks.

There have been signs of a pickup in the market lately. Last Thursday, the U.S. capital markets had their biggest day for IPOs in nearly three years. Although the economy is not out of the woods yet, it’s an encouraging signal of what’s to come. [5 ETFs to Play the Recovering U.S. Economy.]

First Trust‘s IPO ETF – First Trust IPOX-100 (NYSEArca: FPX) purchases  stocks from many different companies that are about to go public for the first time. But here’s how it gets around the “rabbiting out of the gate” conundrum with which IPO stocks are often faced: FPX only incorporates a stock after its first seven days of trading in order to miss the frenzied “buy” period. Then it holds the stock until the 1,000th day of trading, at which point they’re moved out and new stocks are added in.

At any given time, the fund holds the 100 largest IPOs, measuring performance by market cap. It’s rebalanced quarterly. [All About the IPO ETF.]

This fund may be an ideal way for risk-averse investors to play the IPO market in a diversified and low-volatility way. Single-stock picking your IPOs can result in high volatility and a fair amount of risk. If you’re not up for that, FPX may be an option for you. It’s up 6.1% year-to-date.

For more information on initial public offerings, visit our IPOs category.

  • First Trust IPOX-100 (NYSEArca: FPX)

Max Chen 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.