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Mutual Funds: Back Door to IPOs?

I often get e-mail from frustrated readers who say something like, "I tried to get IPO shares, but got none," or "I did get shares, but only 100." Even wealthy individuals have a hard time getting IPOs.

In a way, the IPO game is rigged for very big money; that is, institutions. In fact, the biggest purchaser of IPOs in the U.S. is the Fidelity funds.

Interestingly enough, until a few years ago, there were no pure IPO mutual funds. Why? Well, not many investors knew what IPOs were. But in the past few years, IPOs have become a household word.

And, yes, there are now mutual funds that cater to IPOs. The first one was the Renaissance IPO Plus Aftermarket fund (IPOSX), which was started in early 1998.

To get in, the minimum investment is $2,500. In all, the fund has $130 million under management.

No doubt, the fund has tracked the craziness of the IPO market. Last year, the fund was up a blistering 115%. But as for 2000, the net asset value (NAV) of the fund hit $46.28 in early March and then plunged to $24.30 by the middle of April. Although, the fund has staged a comeback, with the NAV at $33.77.

However, the fund is not focused on high-tech or the Internet. For example, the fund's top holding is Genentech, which is a leading biotech firm.

Currently, the fund has 77.2 percent invested in stocks and the rest in cash. An analysis of the portfolio indicates that the average PE ratio is 46.66 and the median market cap is $4.7 billion.

Another IPO fund worth looking at is the Hambrecht & Quist IPO & Emerging Company Fund (HIPOX). Like the Renaissance fund, this also has tracked the vagaries of the IPO market.

The fund has $433 million under management and the minimum investment is $5,000. The focus of the fund is primarily high-tech. What's more, the fund managers use sophisticated quantitative models to select stocks.

The HQ fund has taken an aggressive approach. About 94 percent of the assets are in stocks and the remaining in cash. In the portfolio, the average PE is 45 and the median market cap is $1.6 billion.