Of FPX’s top-five holdings, only Facebook (NasdaqGS: FB) was an IPO in the purest sense. Three are spinoffs while General Motors (NYSE: GM), a company that is over 105 years old, is an FPX member for all the wrong reasons, namely a bankruptcy and subsequent taxpayer bailout that facilitated an “IPO.”
FPX’s methodology does not necessarily merit criticism, but it does demand investors do a few minutes of homework. For example, it is important to realize FPX’s underlying index, the IPOX-100 U.S. Index, measures “the average performance of U.S. IPOs during the first 1000 trading days,” according to First Trust, meaning IPOs can stay in the ETF for multiple years.
That also means FPX does not rush to add the latest hot IPO, which can work in favor of investors in an environment where nearly three-quarters of IPOs in the past half year hail from unprofitable companies. [Hot IPOs Take the Long Way Into This ETF]
In the six-year period ending 2013, FPX outperformed the S&P 500 on five occasions while ranking as one of the top-four market ETFs in 2012 and 2013.
First Trust US IPO Index Fund
Tom Lydon’s clients own shares of Facebook.