What is an IPO ETF?
This type of ETF is popular with day traders as it offers increased exposure to companies early on in their IPO, which allows them to take advantage of any price swings.
Where have you heard about IPO ETFs?
The First Trust US IPO Index Fund and Renaissance IPO ETF are two of the biggest IPO ETFs.
IPO ETFs were created following a period of highly successful IPOs in 2004 and 2005. This includes Google's share-price increase after its IPO in 2004. However, they are often associated with the ‘dot-com bubble’ when start-up companies were overvalued and then quickly collapsed, causing significant losses to investors.
What you need to know about IPO ETFs.
Like normal exchange-traded funds, IPO ETFs allow investors to access a range of companies, rather than investing individually. This is an easy way to increase diversification in an investment portfolio.
IPOS can show strong price movement when launched initially and it is this that investors want to benefit from by trading in IPO ETFs. By using an exchange-traded fund, investors can be quicker off the mark to purchase shares in companies that seem likely to upswing. However, as with any investment, there is a risk of loss if the company collapses or the shares don’t perform as expected.