Liberal Interpretation Of IPO Helps This ETF Enjoy Facebook's Surge

Benzinga

There are a few certainties surrounding Facebook Inc(NASDAQ:FB)'s meteoric rise. It is irrefutable that the stock is up more than 17 percent over the past month. Likewise, it cannot be debated that now home to a market value north of $306 billion (as of Thursday's close), Facebook is worth more than all but a handful of S&P 500 companies.

What can be debated is whether or not Facebook is a new stock. Three and a half years removed from its initial public offering, Facebook might be new compared to some public companies, but in this case, it depends on what one's view of new actually is. In the eyes of the First Trust US IPO Index Fund (NYSE:FPX) and the IPOX-100 U.S. Index, that ETF's underlying index, Facebook still qualifies as an IPO.

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In fact, FPX currently possesses the largest weight to Facebook of any U.S.-listed ETF. With a Facebook allocation of 10.9 percent as of November 4, FPX's weight to Mark Zuckerberg's weight just nudges past the weights to that stock found in the First Trust Dow Jones Internet Index Fund (NYSE:FDN) and the Global X Social Media Index ETF (NASDAQ:SOCL).

Approximately 80 ETFs currently hold shares of Facebook.

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Indeed, FPX and its index are somewhat liberal when it comes to viewing how long a new stock is, well, new. For example, AbbVie Inc. (NYSE:ABBV) is coming up on its third anniversary as a public company while Phillips 66 (NYSE:PSX) is more than three and a half years removed from its debut as a public company. Yet those companies combine for 14.5 percent of FPX's weight.

FPX's primary rival, the Renaissance IPO ETF (NYSE:IPO), is more strict. It limits components' stays in the fund to two years, meaning Facebook no longer resides in IPO.

FPX's underlying index is a rules based value-weighted index measuring the average performance of U.S. IPOs during the first 1000 trading days. Index constituents are selected based on quantitative initial screens, according to First Trust.

The bit about 1,000 trading days is important because investors looking to use FPX as a proxy on further upside in shares of Facebook do not need to worry about the ETF suddenly dropping the stock. Based on FPX allowing stocks to stay for 1,000 trading days and how many trading days Facebook has currently been around for, it will be sometime in 2017 before FPX has to part ways with the stock.

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