First Trust, the Wheaton, Illinois-based sixth-largest US issuer of exchange-traded funds, recently gave a global twist to its domestic IPO-focused ETF, the First Trust US IPO Index Fund (FPX).
The newly launched First Trust International IPO ETF (FPXI) aims to replicate the success FPX, which was launched in 2006, but found favor with investors only at the start of 2013 and managed to rake-in about $500 million since then.
The passively-managed FPXI tracks the IPOX International Index, a benchmark that measures the performance of the 50 largest and most liquid recent Initial Public Offerings (IPO) from companies that are domiciled outside the US.
Like its US-focused cousin, FPXI include spins offs and doesn’t capture first day “pops” that are typically associated with debut trade. Rather it can hold constituent elements for up to 1,000 days after their trading debut and aims to include fledgling stocks before they get added to broader indexes. Both developed and emerging market firms are included in the portfolio, but can be added only after their sixth trading day following initial screens for diversification, liquidity and capping.
The underlying IPOX International Index rebalances every quarter and selects 50 stocks from the broader IPOX Global Composite Index (the base index) while capping constituent weights at 10 percent to mitigate risk. Constituent firms are removed from the index after no more than 1000 trading days as the unique features of IPOs and spin-offs tend to fade in about four years (~250 trading days/year).
Country wise, China gets maximum exposure and takes the top spot with 29.95 percent weight, followed by Germany (10.82 percent), Switzerland (10.17 percent) and Japan (9.67 percent). E-commerce giant Alibaba is the top pick at 9.92 percent followed by Glencore International Plc (9.45 percent) and CITIC Securities Co. Ltd (6.05 percent).
Sector wise, Financials, Consumer Discretionary and Information Technology are the top three holdings with 28.42 percent, 17.75 percent and 13.51 percent weightings, respectively.
FPXI is likely to face challenge from Renaissance Capital’s recent launch – Renaissance International IPO ETF (IPOS). Investors seeking exposure in the global aftermarket performance of recent IPOs and spin-offs on the back of strengthening economic recovery may consider investing in FPXI.
The fund has an annual expense ratio of 0.70 percent.
Disclosure: No holdings
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