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ETF Looks to Capitalize on Hot IPO Markets

A last point made by Smith is that despite how well IPOs have done this year, 2013 is nothing like the late 1990s when there were more than 500 IPOs in some years and she believes the current IPO boom has a long way to go.

Smith is making an important point. A major contributing factor to the tech wreck in 2000 was that the market was flooded with a new supply of stocks, the IPOs, that eventually overwhelmed demand and so prices fell.

While there is obviously the potential for self-serving comments from the manager of any niche product it is true that there are fewer IPOs these days; in 2013 there have only been 130 new offerings and there is reasonable sector diversity with today's new issues compared to the late 1990s.

The argument made by Smith for a more complete domestic exposure is less compelling than the stellar track record put in by first to market FPX since its inception. The only year that FPX lagged the S&P 500 was 2008. There can be no certainty for continued outperformance but seven years is a reasonable sample size to argue that owning a basket of IPOs is a valid strategy and if FPX can continue to succeed then it is also likely that IPO would also succeed.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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