First Trust Advisors has launched an equity ETF targeting European companies recently listed by way of an initial public offering (IPO) or spin-off from an existing company.
Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust.
The First Trust IPOX Europe Equity Opportunities ETF (FPXE US), which has listed on Nasdaq Exchange, seeks to build on the success of its US counterpart – the First Trust US Equity Opportunities ETF (FPX US) – which launched in April 2006 and has grown to nearly $1.2 billion in assets under management.
The underlying reference for the new ETF is the IPOX 100 Europe Index, a market-cap weighted portfolio of the 100 largest and typically most liquid European stocks that are part of the parent IPOX Global Composite Index.
The index currently includes names such as Ferrari, Amundi, Michael Kors, Fever-Tree Drinks and HelloFresh.
Equities enter the parent index on their sixth trading day following listing and exit 1000 trading days (four years) after. The entry point is timed to avoid the heightened volatility often seen in the first few days of IPO trading, while the four-year exit mark is the result of extensive back-testing analysis that showed it to be the optimal holding period.
The poor performance of the recent Aston Martin IPO, Aston Martin Lagonda Global Holdings plc, demonstrates the efficacy of postponing entry into the index for a short while.
According to IPOX Schuster, the firm behind the index, the fund will appeal to investors who wish to access the growth characteristics of the IPO market but are concerned about the stock-specific risk of trying to pick which IPOs will be successful.
“Exposure to the IPOX 100 Europe Index provides investors with a diversified, one stop solution to access the performance of European new listings, an economically significant group of companies which often serve as a proxy for European economic growth and innovation,” said Dr. Josef Schuster, CEO of IPOX Schuster. “I believe that this unique investment approach will benefit investors seeking equity exposure outside the traditional European benchmarks.”
The ETF is likely to provide diversification benefits to portfolios consisting of traditional vanilla index funds which typically track indices with much longer waiting periods before newly listed stocks are added.
“Recent IPOs and spin-offs represent an important segment of the European stock market that is often absent from other European focused index ETFs,” said Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust. “This fund provides a unique strategy for investors to gain exposure to the innovation and growth of these stocks before many are added to broad index funds.”
The fund comes with an expense ratio of 0.70%, slightly higher than its US equivalent which charges 0.60%.