With the much-hyped LinkedIn (LNKD) IPO having priced last week, an ETF designed to capture the IPO market, or at least the money of retail investors hoping to gain from IPOs, has been getting a lot of attention.
The ETF, the First Trust US IPO Index (FPX), holds the stock of theoretically newly minted shares. To get the low-down on this and other ETFs, Breakout brought in Tom Lydon, the editor of ETFTrends.com.
Lydon explains the IPO ETF as "an index based on 100 IPOs." Alas, "it's cap-weighted, meaning a small number" of stocks will have an unusually large impact on the ETF. Translated into human-being, that means a $10 billion (and dropping) company such as LinkedIn will have a much greater influence on the ETF than the vast majority of newcomers. Add to that the fact that "new" is a relative term in the long moribund IPO market, and you've got an ETF selling itself as a vehicle to invest in new and sexy shares, but actually holding companies such as Visa (V), a $62 billion juggernaut public since 2008.Read More »from ETFs: Stick With the Tried and True, Tom Lydon Says