New ETF Tracking IPOs Launching Today (FPX)

They’re throwing yet another log onto the ETF fire this morning when yet another fund tracking yet another index that hardly anybody’s heard of starts trading at the future condo development on Trinity Place. Putting aside the 60% expense ratio – which seems a little excessive, but may be a typo – the First Trust IPOX-100 (FPX) will track the performance of the biggest US IPOs.

As an index, it’s kicked the living daylights over the S&P 500 over just about any time period you care to choose, turning in 24.5% in 2005 and a mere 8.22% so far this year. As an investment, it would be an interesting candidate for a long-term cost averaging play – an investment on Dec 31, 1999 was still underwater at the end of 2005 – but as a trade? Well, knock yourself out.

Certainly one of the most annoying aspects of the product is that it is one of those disciplined, totally transparent, rules-based blah blah blah but good luck tracking down a clear explanation of what those rules are. As near as can be figured from the website of the index provider, IPOX Schuster LLC:

* IPOs come into the IPOX Composite at their seventh trading day after going public and automatically exit after 1000 days, or roughly four years trading. Admission is, however:
* “Subject to satisfying size, float and certain initial trading characteristics.

Comments

[paa1404]

i see IPO's as dubious investments. aren't IPO's one of the possible explanations of the small-growth anomoly (the anomoly beign that SG so terribly underperforms what's expected from it's famma-french factors).

[IPOX]

IPOX (FPX) is about gaining exposure into the largest IPOs during the past four years: IPOs/spin-offs enter the index by size (if they are large enough at inception of trading) or by momentum (through quarterly re-balancing). This tilts the index towards large-cap stocks and is investable solution to the dispersion of long-run IPO returns whereby many IPOs underperform but exposure into few overperforming ones can have substantial asset allocation benefits.