How to invest in IPO's with ETFs

If you could go back in time, which stock would you buy at its IPO? Apple? Netflix? Amazon? Berkshire Hathaway? The list of successful companies is not short. On the other hand, there are a lot of companies that are doing very poorly compared to their IPO price. If you want to profit from stock IPOs, but you do not want to pick stocks individually, you can use ETFs that invest in IPOs. In this article, we will explore 3 ETFs that provide exposure to IPOs in US and Internationally. 

FPX

First Trust US Equity Opportunities ETF tracks IPOX-100 US Index. It measures the performance of the top 100 largest and most liquid new companies, ranked by market capitalization. The portfolio is weighted based on average performance of U.S. IPOs during the first 1000 trading days, with a 10% cap on all its constituents. The strategy of this ETF has resulted in YTD performance of 21% (S&P 15%), 1 year return of 26% (S&P 23%), and a cumulative 5 year return of 140% (S&P 101%). Morningstar has given 5 stars to FPX. 

FPXI

First Trust International IPO ETF tracks IPOX International Index. It measures the performance of the 50 largest and typically most liquid new companies that are domiciled outside the US. The portfolio follows performance of recent IPOs and spin-offs in both emerging and developed countries during the first 1000 trading days, with a 10% cap on all constituents. The YTD performance of FPXI is 36% (S&P 15%), and 1 year performance is 30% (S&P 23%). This ETF was incepted on Nov 2014 and is a great way of having exposure to IPOs outside US. 

IPO

Renaissance IPO ETF selects its holdings from the top 80% of newly public companies based on full market capitalization. The stocks are weighted by free float capitalization and there is a 10% cap on large constituents. Sizable IPOs are added on a fast entry basis, the rest are added during scheduled quarterly reviews. After two years, the stocks are removed from the portfolio. This strategy has resulted in YTD performance of 34%. Currently, IPO has 39 stocks in its portfolio. This ETF is relatively new (inception date is Oct 2013), so time will tell if its strategy can produce strong results or not. 

The bottomline is, if you want to have exposure to a basket of IPOs, these ETFs provide a diversified approach, and they have been successful. If I had to choose I would pick FPX for two reasons; it has been around longer, and it holds its stocks longer than IPO. Nonetheless, all three of the ETFs mentioned are decent, and it is up to the investors to see which one fits their portfolio the best. 

Disclosure: At the time of this publication I have no position in any of the ETFs mentioned. This publication is NOT intended as financial advice. Published statements are opinions only.