Greg Newton has has written a good article down below about the new First Trust IPOX 100 Index Fund (NYSEARCA:FPX). I basically agree with him that the case for investing in initial public offerings as a class has not been made. Not by First Trust, and not by index provider IPOX Schuster LLC
IPOX Schuster is almost as bad as Powershares in not documenting index methodology. One of the many advantages of ETFs over classic mutual funds is that the portfolio is open and deterministic. But IPOX Schuster makes only vague comments about the exclusion criteria for the IPOX index. Without any filtering for the quality of the IPO companies, FPX could become cluttered with various dot-bombs and overleveraged zombies tossed out by private equity companies.
IPOX Schuster does claim that Sabarnes-Oxley has improved the quality of IPO companies, but I disagree. You still see a fair amount of immature uninvestable companies (now with good accounting) being offered for sale. The reference to “pre-IPO accruals management and long-run stock price performance