Three IPO Funds to Watch

NEW YORK (TheStreet) -- IPO investing is a difficult task, market by asymmetric information and volatile aftermarket performance. While picking the right IPO can be like winning the lottery, an investment in the wrong stock can have similarly dramatic results.

As the economy heats up, more companies will be gathering the assets needed to "go public" and listing on exchanges across the globe. The chances that you'll pick the next Google (GOOG Quote) are low, and risks are high, so a compelling case exists for fund-structured IPO strategies.

Direxion, creator of Direxion Daily Financial Bull(FAS Quote) and Direxion Daily Financial Bear(FAZ Quote) has announced its intention to launch the IPOX Global Long/Short mutual fund to capture the global IPO market. The fund will take an active approach to evaluating IPOs, and go long or short stocks accordingly.

Recognized most notably for leveraged ETFs and mutual funds, Direxion's newest fund will use the same index provider as the existing First Trust US IPO Index ETF(FPX Quote). Also currently available to investors is the open-ended IPO Plus Aftermarket Fund(IPOSX Quote).

Dr. Josef Schuster, architect of the IPOX Indexes, reports that the global IPO market captures an average of 2,100 firms and $2.5 trillion market cap over a four-year rotational cycle. This means huge potential returns for investors, if they can pick the right funds.

By using an ETF like FPX or a mutual fund like IPOSX, investors can avoid security specific risk. Schuster notes that, "as an effect of the consequences of 'going public,' the return dispersion of constituents becomes huge over time." The risk/reward ratio for these firms is huge.