Twitter Sparks Interest in IPO ETFs (FPX, IPO, FB)
The countdown is on for the day that Twitter (NYSE: TWTR) begins trading on the NYSE. Reports are pointing to the first week in November as the day that all 140-character authors have been waiting for.
The IPO for Twitter may not be garnering as much attention as its social networking peer, Facebook (NYSE: FB), but there is plenty of investors waiting to buy their first share of the stock.
Most investors will never have the opportunity to buy into Twitter at the IPO price and therefore must wait for the stock to begin trading to the public on the NYSE. Investors need to be cautious because there is a high probability the stock opens trading much higher than the expected pricing range for the IPO that is currently $17 to $20 per share.
Buying into Twitter stock at all may be too risky for a large number of investors and if that is the case there is another alternative – IPO ETFs. After the launch of a new ETF in the niche sector earlier this month there are now two options to choose from.
First Trust IPOX 100 Index ETF (NYSE: FPX)
Launched in April 2006, the IPO-focused ETF has only started to garner more attention in the last year as the IPO market has rebounded and FB once again excited the individual investor. The ETF focuses on the 100 largest and most liquid U.S. IPOs. The stocks can be held in the ETF during the first 1000 trading days.
The current top holding is FB, which makes up 11 percent of the allocation. Consumer discretionary and IT are the two sectors with the largest exposure and the ETF charges and annual expense ratio of 0.60 percent. This year the ETF has greatly outperformed the overall market with a gain of 38 percent. A short-term pullback is likely and the next level of support is that $42 area.
Renaissance IPO ETF (NYSE: IPO)
The latest foray into the sector is IPO, which began trading on 10/16/13. The ETF also focuses on the largest and most liquid IPOs in the market, but the specifics vary. IPO will look to add the new IPO on a fast entry basis on either the fifth trading day or upon a quarterly review. FPX did not add FB immediately and tends to wait longer to add a new IPO. The other difference is that IPO will only hold a stock during its first two years of trading, less than FPX.
Instead of 100 stocks, IPO only holds 50 stocks in its portfolio, but the top holdings are identical, with FB making up 11 percent. Other top holdings include Zoetis (NYSE: ZTS) and Michael Kors (NYSE: KORS). The expense ratio is the same at 0.60 percent.
It will be interesting to watch and see which IPO ETF adds Twitter to their portfolio first and the size of the allocation. Investors that want a piece of Twitter as well as the entire IPO market should wait until the ETF adds the stock before making the move. This can be done by periodically checking the websites for each ETF.
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