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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First Trust U.S. IPO Index Fund ( FPX)

Fund Profile: Comprising IPOs and spin offs, the First Trust U.S. IPO Index Fund corresponds to the price and yield of an equity index called the IPOX-100 U.S. Index. The fund has returned 10.5% over the past year.

Closing Price: $20.76 (Sept. 23)

Top Holdings: Philip Morris International ( PM), Visa ( V), MasterCard ( MA), Covidien ( COV), Viacom.

Mehrotra's Take: "FPX invests in a stock after its first seven days after the initial IPO, thereby missing the chaotic initial buying period. It then automatically exits the stock after 1,000 days of trading, and new stocks are added. This ETF started trading in May 2006, and it has added about 300 to 400 basis of alpha, or excess return, over the S&P 500. Over a three- or four-year period, 300 to 400 basis points a year is not chump change. You can capture a lot of the IPO bucket through this play."

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PowerShares Listed Private Equity ( PSP)

Fund Profile: The PowerShares Listed Private Equity ETF seeks results that correspond to the Red Rocks Listed Private Equity index, which consists of stocks and ADRs of 34 publicly listed private-equity companies. The fund has returned 3.5% over the past year and 7% so far in 2010.

Closing Price: $9.51 (Sept. 23)

Top Holdings: HAL Trust, Blackstone ( BX), Leucadia National ( LUK), 3I Group, Ratos, Onex.

Mehrotra's Take: "The way we play pre-IPOs is using the PowerShares Listed Private Equity ETF. This gives access to the private-equity funds, which usually require being an accredited investor with $1.5 million net worth. Retail investors don't have access to that. Private equity leads many IPOs to market and reaps the benefits of the public offering. PSP gives liquid exposure to private-equity companies but without minimums."

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iShares Trust Russell Microcap ( IWC)

Fund Profile: The iShares Trust Russell Microcap tracks the Russell Microcap Index. The fund invests primarily in stocks of companies ranging from $50 million to $550 million. The fund has returned 1.2% over the past year and 4% this year.

Closing Price: $40.67 (Sept. 23)

Top Holdings of ETF: Sonic Wall, B&G Foods ( BGS), RCN, Stratasys ( SSYS), Micromet ( MITI).

Mehrotra's Take: "You still can capture some of the IPO value by playing the post-IPO bucket. That is where the micro-cap and small-cap growth companies come in. We believe micro cap represents public venture capital better than the small-cap growth companies because they're all smaller. When you look at smaller companies, the growth rates are higher. This captures the growth spurt that comes with venture-backed start-ups. These companies come out of the gate growing at 50% to 100% a year and that momentum lasts for at least three to five years."

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Claymore/Beacon Spin-Off ( CSD) invests in U.S. spinoffs in the past two years.

Fund Profile: By investing in companies that have been spun off within the past two years with market values under $10 billion, the Claymore/Beacon Spin-Off ETF seeks results that correspond to the Clear Spin-off Index. The fund has returned 16.4% over the past year and 7.5% in 2010.

Closing Price: $20.13 (Sept. 23)

Top Holdings of ETF: Philip Morris International ( PM), Dr Pepper Snapple ( DPS), Lorillard ( LO), AOL ( AOL), Ascent Media ( ASCMA).

Mehrotra's Take: "When you talk about IPOs, you're also looking at spin offs. While some of the other ETFs do include spin offs, this is a pure-play ETF that only invests in spin offs."

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Direxion Global Long/Short IPO Fund ( DXIIX)

Fund Profile: Launched in March, Direxion Global Long/Short IPO, a mutual fund, uses the methodology developed by IPOX Capital Management to establish a long/short portfolio made up of IPOs and new equity issues.

Closing Price: $30.34 (Sept. 23)

Top Long Holdings (as of June 30): United Co., Samsung Life Insurance, Essar Energy, Wynn Macau, Dollar General ( DG)

Top Short Holdings(as of June 30): Athenahealth ( ATHN), China National Materials, Renhe Commercial Holdings, China Metal Recycling, China National Building.

Mehrotra's Take: "This helps someone looking to employ a hedge-fund strategy of going long and short. Looking at the larger question of separating the good IPOs from the bad IPOs, this particular mutual fund mirrors an index where the manager goes long IPOs they believe will do better and they go short IPOs that they believe will do worse than the markets."

-- Written by Robert Holmes in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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