ETF Investors Want Visa To Be Where They Are, But They’ll Have to Wait

March 26, 2008

by Tom Lydon

Visa is a multi-billion dollar global credit card business and despite the initial public offering, the largest in U.S. history, the company will not be jumping into any financial exchange traded funds (ETFs) just yet.

Jefferey Ptak of Morningstar says that Visa will likely follow in Mastercard’s (MA ) footsteps, getting picked up by financial ETFs, it’s just a matter of time.

John Spence for MarketWatch reports that the Visa (V ) IPO raised about $18 billion last week, when the shares were priced at $44 above expected range. The stock jumped 28% the first day of trading and closed at $59.73 for Monday’s session.

One ETF Visa could likely gain entree to sooner rather than later is the First Trust IPOX — 100 Index (FPX ). which tracks an index of the top 100 IPOs. The fund adds IPOs on their seventh day of trading. to allow the excitement to fade some so that it doesn’t create volatile movements in the fund. Visa’s IPO took place on March 19, and the seventh trading day will be Friday. Keep an eye out.

Mastercard is a major holding of FPX, at 5.3% of assets. Someday, Visa also could be joining Mastercard in the iShares Dow Jones US Financial Sector (IYF ) .

Visa’s Close to Going Public, and It Could Land In IPO ETF

February 27, 2008

by Tom Lydon

Visa is readying to take the plunge and go public — does this mean it could be making an appearance in the IPO exchange traded fund (ETF)?

This IPO is coming at an interesting time for the financial markets, says Eric Dash for the New York Times. The nation’s largest credit card network, however, doesn’t seem to be daunted as it prepares to sell as much as $17.1 billion of stock in late March.

Visa, and its rival, MasterCard, have been thriving as Americans bust out the plastic to pay for nearly everything. And the financial crunch hasn’t been hurting them because they don’t actually make the loans — they just process the transactions for the banks that do. The IPO could actually help its member banks, because it will generate a windfall for them if everything goes according to plan.

Since Visa’s IPO is the largest-ever, could the IPO-tracking ETF, U.S. IPOX 100 Index Fund (FPX ). soon be adding the company to its rotation after the initial rush? The fund could surely use a boost: it’s down 10.2% year-to-date.

FPX is designed to measure the 100 top IPOs in the United States, measuring their performance by market cap and rebalancing quarterly. They’re added to the index on their seventh day of trading and bumped out on the 1,000th day.

What’s Behind Malaysia ETF’s Big Leap?

January 14, 2008

by Tom Lydon

Malaysia’s economy is hopping along, if the performance of its exchange traded fund (ETF) is any indication.

The iShares MSCI Malaysia (EWM ) was up 7.7% last week. What’s going on?

The country’s currency, the ringgit, reached its strongest level since November 1997, Chan Tien Hin of Bloomberg reports. The key index, the Kuala Lumpur Composite Index, posted a fifth-straight record, stocks jumped higher and there was speculation that a possible early general election may drive even more gains.

Some say that Malaysia could be viewed as a safe haven while the United States economy works through its issues.

Meanwhile, according to Forbes. Malaysia’s securities watchdog introduced an over-allotment option and price stabilization for initial public offerings (IPOs) in the country. That will allow issuers to sell investors more shares than originally planning so that demand for an IPO can be met efficiently.

Using ETFs to Track IPOs

December 04, 2007

by Tom Lydon

Getting in on an initial public offering (IPO) can be a hit-or-miss proposition — how do you know what’s going to take off and stay taken off vs. what’s going to peter out after an initial rush of excitement? What’s the next Google and what’s the next Krispy Kreme? Joseph Schuster, the creator of the index that U.S. IPOX 100 Index Fund (FPX ) exchange traded fund (ETF) tracks, believes he has identified a solution to the problem.

This ETF tracks an index of 100 top IPOs in the U.S. measuring the performance of them by their market cap and rebalancing quarterly. They’re added into the index on their seventh day of trading in order, Schuster says, to capitalize on a long-term buy and hold perspective. On their 1,000th day, it’s time to move on and the once hot new things are bumped out of the index in favor of a new IPO.

Only a few IPOs are really interesting from an investor’s perspective. Ninety percent of them turn out to really be dogs, underperformers. We provide a stable solution to the problem, Schuster says.

The IPOX 100, launched in April 2006, is the first offering to track U.S. IPOs, but there’s a whole line of IPO indexes that IPOX-Schuster offers that target IPOs around the world. Later in 2006, Dow Jones launched the Dow Jones STOXX IPO indexes in the European market. They track the performance of European IPOs over three time periods: 3 months, 12 months and 60 months. A key difference between STOXX and IPOX is that STOXX includes IPOs on the day after their initial offering.

While IPOX has more exposure in large-cap IPOs, Schuster believes IPOs ultimately should be seen as a separate asset class because their returns and risks are different than that of the average, everyday stock. We think the industry makes a mistake in not classifying them separately, and that’s what IPOX is all about.

Global IPOs Enhance BRIC ETFs Offerings

October 23, 2007

by Tom Lydon

Exchange traded funds (ETFs) that track the markets of Brazil, Russia India and China (known as the BRIC block) and other emerging-market countries received some good news recently. For one, seven out of the top 10 IPOs in the third quarter were from emerging markets. Nearly half of the $57 billion raised globally by IPOs in the latest quarter was by companies in the so-called “BRIC” countries of Brazil, Russia, India and China, which produced a record 118 IPOs, reports Joanna Chung for the Financial Times. The Asia-Pacific region, and in particular China and Hong Kong, had the major share in terms of both the number of IPOs completed as well as the money raised.

One example is Petro-China, the state-owned oil and gas group, that launched an initial public offering (IPO) listing in Shanghai in a deal that could raise more than $9 billion, says Carl Delfeld for ETF XRAY. Grupo Clarin, Argentina’s largest media group raised more than $500 million on the London Stock Exchange on Friday.

The BRIC ETFs that could benefit from this include the Claymore/BNY BRIC (Brazil, Russia, India, China) ETF (EEB ) and the SPDR S&P BRIC (Brazil, Russia, India, China) 40 ETF (BIK ). Currently, EEB is up 62.2% year-to-date, and BIK is up 22.4% for the last three months, having launched in June.

For full disclosure, some of Tom Lydon’s clients own EEB.