The First Trust US IPO Index Fund (NYSEArca:FPX) could be the best-placed ETF on the market today to benefit from what's turning out to be one of the busiest U.S. initial public offering seasons in the past five years thanks to upward momentum in the stock market.
So far this year, 64 U.S. companies have collectively raised nearly $17 billion through initial public offerings, putting them on pace to raise the most money through IPOs since before the 2008 financial crisis, according to a Wall Street Journal article this week citing data from Dealogic.
The article goes on to say that a "more robust IPO market is seen as a potential boon for the economy because it allows companies to raise money that can be used to reduce debt or invest in their businesses."
FPX is the only ETF that focuses exclusively on U.S. IPOs, aside from a pair of UBS E-Tracs ETNs-EIPO and EIPL-that tap into the segment through Internet-focused portfolios. One of them, EIPL, is a leveraged play.
FPX tracks the IPOX 100 U.S. Index, a modified value-weighted price index, and essentially serves up exposure to the 100 largest, and often best-performing and most liquid, U.S. IPOs over the first 1,000 trading days of each stock. Individual stock exposure is capped at 10 percent.
"Though hot tech stocks leap to mind when you think IPO, FPX's total tech exposure is roughly market-like despite a 9 percent allocation to Facebook," according to a research about the fund published by IndexUniverse's ETF Analytics unit.
By rule, firms drop out of the index four years after addition-substantially altering the fund's exposure. The eclectic basket of securities currently favors consumer cyclical and energy stocks, and it underweights industrials.
Most days, FPX trades more than $600,000, with spreads averaging 0.18 percent, according to IndexUniverse data. That's not too wide, especially considering that the fund remains relatively small-under $100 million in total assets.
Launched April 2006, FPX has seen its assets under management practically double since the beginning of this year thanks to net inflows of more than $43 million.
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