Investing in New Public Companies for the Long Run

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Initial public offerings (IPOs) allow private companies to sell shares to the public to raise capital. The First Trust U.S. Equity Opportunities ETF (FPX) is designed to seek opportunities to capture a portfolio of IPOs that will outperform the market.

Exchange-traded funds (ETFs) which focus on IPOs are special, since they provide exposure to new public companies before they join other core U.S. equity indexes. This provides investors with a better chance to benefit from the initial surge in stock price that frequently occurs in a new public offerings.

FPX shares this same trait, but it also is focused on IPOs that are more likely to outperform in the long-run. This situation makes FPX a popular choice among investors that employ a buy-and-hold strategy.

As a growth fund that grants investors exposure to U.S. equity capital and private equity activity, FPX includes in its portfolio the 100 largest U.S. IPOs during the last four years. These companies also are typically among the best-performing and most liquid U.S. companies. FPX caps exposure to all of its 100 firms at 10%, and rebalances its list of companies on a quarterly basis.

With each quarterly rebalancing, firms aging out of the fund are removed and fresh IPOs are added, giving FPX a continuing supply of new offerings. FPX historically has captured around 85% of the total market capitalization created through U.S. IPO activity during the last four years, with a tilt towards mid- and large-cap stocks. FPX is a fund that moves with and adjusts to the times.

The fund is around 20% invested in health care and technology — two fast-growing sectors and two of the hottest IPO sectors — with consumer defensive, consumer cyclical and financial services coming in next with 14% each. FPX sports an expense ratio of 0.60% and a dividend yield of 0.75%.

Exclusive  Alternative Investing: Investing in Timber

Incepted in April 2016, FPX holds a compound return of 10.5% per year over the last 10 years, beating out the S&P 500’s 6.9% per year. Over the last year, FPX held a return of 22.09%, beating out the S&P 500’s return of 19%. Currently, FPX returns around 3.3% year to date on total assets of $647.23 million.

fpx

The top five holdings for FPX are: Kraft Heinz Co. (KHC), 10.00%; AbbVie Inc. (ABBV) 9.28%; Shire PLC ADR (SHPG), 4.69%; PayPal Holdings Inc. (PYPL), 4.68%; and Facebook Inc. A (FB), 3.6%.

If you are looking to access a basket of relatively fresh stock issues that are geared for performance in the long-run, First Trust U.S Equity Opportunities ETF (FPX) may be worth your attention.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

previous article

Income expert Bryan Perry shares his take on how increased output benefits leading economies.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike Turner’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE