Sometimes persistence is more valuable than success — at least, one could be forgiven for thinking that after watching the newsletter publishers at their game for a while. The latest ad I’ve been getting a lot of email about lately is for Ann Sosnowski’s Diligent Investor newsletter, and it’s almost identical to an ad that I wrote about nearly a year ago.
But many, many of you dear readers were not yet drinking the Gumshoe Kool-Ade back in May of 2007 when this first appeared in this space, so I’m revisiting it here.
And just as an aside, perhaps it’s an indication that sexism is waning, she’s usually signing as Ann now, not A.M. or whatever initials she used to use.
The “Secret IPO Registry” report is worth $199, according to its publisher, but is FREE with your subscription (I think the sub price for this one is $49/year). They’ll also “throw in” a free special report about the Geneva Wizards behind the latest tech boom … but no rush on that front, we looked at that one back in December.
Or of course, the name of the investment profiled here is always free … for the finest and most discriminating readers in cyberspace, those who have found the Stock Gumshoe.
And with this information, you could (in the words of the newsletter publisher) “grow $5,000 into $32,000 by owning a collection of the best new companies in America. Never before has one single investment stacked the odds for windfall profits in your favor like this.”
And this ad is interesting, too, because it’s clearly for some kind of mutual fund or pooled investment vehicle, not for an individual stock.
The sell is hard for IPOs in general, with the basic argument that the IPO economy is turning around, and that you need to get in on these undiscovered gems early, with the insiders, if you want to see great profits. According to them, we’re at the beginning of the “next IPO Boom Cycle!”
Not to put too fine a point on it, but that’s exactly the same thing they said back in May of last year. Now they’re saying that 2008 is shaping up to be a great year for IPOs … generally, not what most folks are probably thinking in the markets these days, though that could always change. And hey, I guess it’s true that it’s probably easier today to sell stock in your company than it is to try to get private equity to buy you out … or to borrow money to expand privately.
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Some more of the selling language: “You could make 27% per year just on the historical appreciation of IPO stocks alone. But since you’re buying only the BEST and MOST PROFITABLE IPO‘s offered on the market, you could make 45% on your money each year for the next five years, enough to turn $100,000 into $700,538.14. And considering the profitability of today’s new listings, you could make even more.”
So there are lots of leaps of faith and assumptions baked into the eye-popping returns that we’re led to expect from this investment as the IPO boom cycle gets underway.
So what is this investment, at times called an “index,” that allows you to invest in a basket of the best — and only the best — IPOs? That’s quite a promise to make.
We don’t know that much about it from this ad — we do know the price, which is around $14 (yes, the same price it was teased at in May of 2007). We know that it’s for American companies.
And we have some specific quotes about the characteristics of the fund: “For the super-cheap price of $14, you’ll own a diversified portfolio of large and small capitalization IPO‘s that have limited research, limited float, limited public ownership, and are relatively unknown in the U.S. capital markets.”
So all of that valuable data goes into the Gumshoe Pensivometerizationoctomer, and we find that the name of this investment is …
The IPO Plus Fund from Renaissance Capital (also called the “IPO Plus Aftermarket” Fund), ticker IPOSX. Surprisingly enough, it’s not even an ETF, just a regular ‘ol mutual fund.
So why do I think this is the investment being teased by Sosnowski?
– They specifically mention starting with an investment of $5,000. That’s the minimum amount for buying shares in this fund in a regular account ($2,500 in an IRA, FYI).
– The price — right now, shares are going for $13, but a month or so ago they were up at $14, right where the ad said it would trade (though that’s certainly close to irrelevant for a mutual fund, since they sell partial shares)
– The objective — this is a fund that focuses on US companies and can use leverage, as teased. It’s also one that specifically tries to find “undiscovered” newly public companies.
Here’s a quote from the fund prospectus (that’s right, I actually read the damn thing. Yes, it was boring): “The IPO Fund will limit aftermarket investments to those IPOs that have one or more of the following characteristics: (i) limited research; (ii) unseasoned trading; (iii) limited float; (iv) limited public ownership; (v) limited operating history; or (vi) are relatively unknown in the U.S. capital markets.”
And just compare that quote with the following quote from the ad (it’s also above, but copying here for convenience): “For the super-cheap price of $14, you’ll own a diversified portfolio of large and small capitalization IPO‘s that have limited research, limited float, limited public ownership, and are relatively unknown in the U.S. capital markets.”
That exact wording match is pretty convincing for me.
And to finish it off, there isn’t much else out there in IPO fund land — there is one main IPO index, the IPOX-100 from Ipox Schuster, and several derivative IPOX-30 indexes for various markets, but the only current ETF based on those indexes isn’t currently trading anywhere near $14. These are also rules-based indexes, not those looking for specifically undiscovered stocks, and they I don’t think they use use leverage or short-selling or anything fancy like that (IPOSX can, if they so choose). You can go to ipoxschuster.com to learn what the rules are, or to see how you might invest in vehicles based on their indexes as they’re released.
Renaissance is the leader in this sector for mutual funds, and I’m not aware of any followers. It’s pricey, with an expense ratio of over 2.5%. The IPOX-100 ETF, actually called the First Trust IPOX-100 Index (ticker FPX) has an expense ratio of about .6%, for comparison purposes, and also aims to be a global index of IPOS, not just a US one.
If you believe that IPOs in general are really going to show dramatic performance, it’s certainly possible that this actively managed fund will outperform the (very new) index — I have no idea. I do know that it’s been a while, since 2003, that the IPO Plus fund outperformed the S&P 500, and they haven’t had a particularly good year since then. On the plus side, 2003 was a monster year for IPOSX, with a 52% gain. The FPX ETF has had a fine year, but has only been around for a year.
Oh, and for the time period following the beginning of this tout? Back in May the shares in the fund were trading at a little over $14, they briefly got up to $15.50 in the Fall, but now are back down at $13. I didn’t check to see what kind of capital gains or dividends might have been paid out to shareholders in December, but unless they’re staggering that’s a return pretty much in line with the overall market. Assuming, of course, that you ignore their ridiculously high 2.5% expense ratio.
This one gets two stars out of five from Morningstar, for those who care about that. And the last time Morningstar updated their analyst report, way back in 2003, they opined that “We see no reason to recommend this ultra-risky offering” and they haven’t written about it since. There isn’t another easy way to buy into the broad IPO market through a mutual fund that I’m aware of, but even though occasional outsize gains might appear during manic IPO periods I don’t think most financial advisors would recommend allocating a portion of your portfolio to IPOs just for IPOs sake.
The other big fund in this area used to be H&Q IPO & Emerging Company Fund, but they either don’t exist or got absorbed into something else, as far as I can quickly tell. There used to be another one from MetaMarkets.com, but they don’t even own their own domain name anymore, let alone still having an active fund that I can find. Most of these kinds of funds were born in the late 1990s (surprise!), and, equally surprising, most of them had very bad performance during the subsequent few years. This one appears to be the only one left standing. I don’t think there are even any closed-end funds that focus specifically on IPOs.
So there you have it — I’m pretty sure this is our teaser investment, but it would probably be impossible to be 100% sure on this one, given the lack of specific numerical clues. I’ll call it 95% sure, if anyone else has a better analysis of this “secret” please share.
And I wouldn’t be surprised to see some more IPOX Index-based ETFs showing up in the next year or two, if anyone’s interested in this particular roll of the dice.
So … if you didn’t believe in the resurgence of IPOs back in May of last year (congratulations, by the way), you’ve got another chance to become a believer now. Whaddya say?