Safely Grab A Piece of the IPO Pie

Make no mistake about it, initial public offerings or IPO’s were steaming hot in 2013.  Although not as heated, the IPO frenzy continues into 2014 with a number of hotly anticipated names going public in a fanfare of positive publicity.

Investors in search of growing stocks love IPO’s.  Sometimes IPO’s can explode higher by 100% or more on their first day of issue.  However, they are also very volatile and extremely difficult to purchase on their first day of release.

You see brokers and investment banks hold back shares of IPO’s for their top clients.  If you don’t have at least $10 million at the issuing institution, you can just about forget being assigned any hot IPO shares.

So just how can the average growth investor get a piece of the thriving IPO pie?

Fortunately, there is an ETF that specializes in IPO’s and it even has built in safety features that help mitigate the inherent volatility.

The ETF is  The First Trust IPOX-100 (NYSE:FPX).   It is up just over 3% this year so far and boasts an impressive five year middling return of over 24%.  The ETF has more than $240 million of assets and is in the large growth fund category.  It has a 10% cap on stock weighting within the portfolio which insures proper diversification.

In a valid attempt to reduce volatility, the IPOX index itself is governed by certain rules.   Examples include, the index does not hold any stock that exhibited greater than a 50% gain on its first day of trading, companies must have market cap of at least $50 million, and there is a seven day wait after the IPO prior to the stock being added to the index.  Lastly, the index discards any IPO after their 1000 trading day. This keeps the index vital and in tune with the present state of the IPO market.

These rules may limit gains but the offsetting risk reduction benefits are well worth it for long term growth investors.

Source: http://tradingtips.com/daily/growth-stocks/safely-grab-piece-ipo-pie/