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%.

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.


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.

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