The First Trust US IPO Index Fund (NYSEArca: FPX) is up 6.2% year-to-date, extending an impressive 2013 run that saw the ETF rank as one of that year’s top market-based ETFs.
Although FPX is a $523 million fund that will celebrate its eighth anniversary in a month, it was not until last year that the fund soared to prominence. FPX’s elevated popularity was perhaps the result of more than 220 initial public offerings. FPX hauled in more than $275 million in new assets last year and has pulled in another $153.6 million this year, numbers that say nearly 82% of the ETF’s current assets under management total have been accrued in just the past 15 months.
ETF inflows do not always paint an accurate picture of future performance, but FPX has justified investors’ new found interest in the fund by soaring nearly 38% in the past year. More gains could be on the way with increasing volume providing a bullish, at least in the eyes of one technical analyst.
“This all changed last year when, as the third panel of the chart shows, volume shot up. FPX went from a 60-week average volume of around 30,000 shares to almost half a million shares in 2013,” writes Andrew Thrasher for Investing.com.
“Looking at the price portion of the chart we can see that since late-2012, the 20-week moving average has held up on short-term drops as it acts as support. The Relative Strength Index also has created solid support near the 65 level. It’s also important to note how much time momentum has spent in ‘overbought’ status. The surge in buyers has kept this IPO ETF with elevated momentum for nearly the entire past twelve months, a bullish sign that demand for shares of FPX has yet to wane,” added Thrasher.
It is, however, critical to remember that FPX is not as intimately levered to the number of IPOs coming to market as the ETF’s name may imply. Taking a closer look at FPX’s holdings, index components include spinoffs – a new company created through the sale of distribution of new shares on an existing firm, companies that have gone public after recovering from bankruptcy and formerly public firms that were privatized in private equity buyouts only to be taken public again a few years later. [IPO ETF is Misunderstood]
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.