Currently, only one ETF tracks the IPO market, the First Trust US IPO Index Fund (FPX). Since the fund’s April 2006 inception, it’s beaten both the S&P 500 and the small stock barometer, the Russell 2000 by at least 13 percentage points (as of July 9). In 2009, the ETF, which has more than half its assets in large companies, posted a return of 45%, according to Morningstar, beating the Russell 2000 by 18 percentage points and the S&P 500 by 19 percentage points. Year-to-date, FPX is down 2.6% because most IPOs have fallen below their offering price in the aftermarket. This compares to the S&P 500’s 3% drop and the Russell’s decline of 0.19%. The fund charges an expense ratio of 0.6%
The ETF doesn’t buy IPOs the first day, but rather at least seven days after they debut on the market. The fund follows the IPOX 100 US Index, which holds each of its 100 stocks for 1,000 days. In SmartMoney.com, I wrote that for a stock to enter the index it needs to post a first-day pop of less than 50%, hold a market capitalization of at least $50 million, and float at least 15% of its outstanding shares. For more see ABCs of the IPO ETF.