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.

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