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Hot IPOs: Gain Access With These ETFs

BOSTON (TheStreet) -- Have you missed out on the 70%-plus returns on the hot initial public offerings of 2010, such as MakeMyTrip Limited (MMYT), RealPage (RP) and Molycorp (MCP)?

Prateek Mehrotra, chief investment offer of iSectors, says investors who are late to the party can still capture returns of hot IPOs.

iSectors
Prateek Mehrotra, chief investment officer of iSectors

Finding the one big IPO winner has proven to be too speculative for individual investors, Mehrotra says, while the other challenge is getting access to the offerings.

"If these are hot IPOs, you need to have a brokerage account with the underwriters and you need to be one of their accredited, favorite investors," he says. ISectors, based in Appleton, Wisc., has about $300 million in assets under management. The company creates asset-allocation models for clients mainly using exchange traded funds.

The difficulty of picking a big winner is heightened as the IPO pipeline lengthens. There have been 190 IPO filings so far in 2010, up about fourfold from last year, according to data collected by Renaissance Capital. They include Skype and General Motors, which have generated considerable investor interest.

The IPO backlog is at its highest level since just before the financial crisis took hold after Lehman Brothers collapsed in September 2008. As the IPO pool widens, exchange traded funds have become the best way for individuals to take part, Mehrotra says.

One of the biggest benefits of investing in ETFs is lower risk. Money is spread out among more companies.

Still, investing in IPOs, or even ETFs, isn't risk-free. Exchange traded funds sometimes fail to track benchmarks precisely, as is what happened with the U.S. Oil Fund (USO).

Nevetheless, Mehrotra says ETFs offer retail investors a smart way to capture gains before the offering, after it prices and during the first few years when the growth rate is at its highest. Read on to see five ETFs that Mehrotra touts as the best way to invest in IPOs.

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