FPX tracks the IPOX-100 U.S. Index, which includes the 100 largest, typically best-performing and most-liquid IPOs in the IPOX Global Composite Index during their first 1,000 trading days. The U.S. IPOX-100 Index has historically captured around 85% of the total market capitalization created through U.S. IPO activity over the past four years.
The index sticks to some strict rules. No single stock can exceed 10% of the portfolio. Companies also must have a market capitalization of $50 million or more to be included. As a result, First Trust tilts towards mid- and large-cap stocks by investing only in the largest IPOs and those that tend to offer the best risk-adjusted returns. Because the portfolio only adds names once a quarter, most holdings have been trading for a month or longer before they are purchased. That means you miss out on the big one-day pops. But you also tend to avoid the real dogs.
FPX's current top five holdings include Facebook (FB), AbbVie Inc. (ABBV), General Motors (GM), Phillips 66 (PSX) and Kinder Morgan, Inc. (KMP) which together account for 34.97% of the ETF.
II. Renaissance IPO ETF (IPO)
Launched only on October 14th, 2013, the Renaissance IPO ETF (IPO) is the new kid on the block in terms of ETFs that invest in IPOs.
This ETF tracks The Renaissance IPO Index, which is up 4.07% year to date.
The Index is a market cap weighted index and includes approximately the top 80% of newly public companies in the United States. The companies it includes must have a market cap of at least $100 million. Each constituent company is limited to a 10% weighting at the time of investment. Companies are removed from the Index two years after their initial trade date.
Larger IPOs are added at the end of their fifth trading day and the rest are added during scheduled quarterly reviews. That gives Renaissance IPO ETF (IPO) the ability to add stocks like Twitter (TWTR) to its index within five days of their debut -- much quicker than First Trust US IPO Index Fund (FPX). The more flexible strategy of Renaissance accounts for its better performance so far in 2014.
IPO's current top five holdings include the social media giant Facebook (FB), Zoetis (ZTS), Workday (WDAY), Realogy Holdings (RLGY) and Splunk Inc. (SPLK) which together account for 33.99% of the ETF.
In case you missed it, I encourage you to read my e-letter column posted last week on Eagle Daily Investor about how to double your dividends in 2014’s volatile market. I also invite you to comment in the space provided below myEagle Daily Investor commentary.
Nicholas Vardy is currently editor of the monthly investment newsletter, The Alpha Investor Letter, which provides longer-term global investments. He also writes two weekly trading services, Triple Digit Trader and Bull Market Alert, which focus on making short-term profits in the hottest markets in the world.
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