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Investing in New Public Companies for the Long Run


Initial public offerings (IPOs) allow private companies to sell shares to the public to raise capital. The First Trust U.S. Equity Opportunities ETF (FPX) is designed to seek opportunities to capture a portfolio of IPOs that will outperform the market.

Exchange-traded funds (ETFs) which focus on IPOs are special, since they provide exposure to new public companies before they join other core U.S. equity indexes. This provides investors with a better chance to benefit from the initial surge in stock price that frequently occurs in a new public offerings.

FPX shares this same trait, but it also is focused on IPOs that are more likely to outperform in the long-run. This situation makes FPX a popular choice among investors that employ a buy-and-hold strategy.

As a growth fund that grants investors exposure to U.S. equity capital and private equity activity, FPX includes in its portfolio the 100 largest U.S. IPOs during the last four years. These companies also are typically among the best-performing and most liquid U.S. companies. FPX caps exposure to all of its 100 firms at 10%, and rebalances its list of companies on a quarterly basis.

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