According to a report by Reuters, managers at exchange-traded funds (ETFs) prefer to wait and check the performance of the company in a public listing. Unlike active mutual fund managers who jump in prior to a company's initial public offering, ETFS would like to see the stock added to an underlying benchmark. This would safeguard ETFs from losing money in an IPO as some companies experience a first-day stock price pop in IPOs.
The Reuters report said ETFs usually use a passive approach on tracking securities in a stock index. Providers of ETFs offer investors that investing on them is much safer because they target new-to-market discovery period of a company's public listing. This would mean that in an IPO, ETFs banked on the period when the the price of a stock had settled and is poised to be integrated into a broader market.
ETFS had highlighted the benefits of being careful with IPOs. New York-based Global X Funds chief executive Bruno del Ama said, "We would wait a few days to let the process of price discovery take place."
First Trust waited until September before added Facebook in its portfolio. First Trust ETF strategist Ryan Issakainen said, "It worked out quite well for investors because at the time it was trading in the low $20's."
Facebook's share price were in the over USD50 range this week on Nasdaq.
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