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Mutual fund eyes IPOs
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October 1, 1999: 5:36 p.m. ET
H&Q IPO & Emerging Company Fund hopes to cut down the IPO 'velvet rope'
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Remember when theglobe.com debuted on Wall Street and soared a historic 600 percent in one day? A pretty nice profit for people lucky enough to get in on it.
But for most investors, initial public offerings are an excruciating blend of pleasure and pain -- pleasurable to imagine such a windfall, and painful to think about getting past the toughest "velvet rope" on Wall Street.
A new mutual fund by Hambrecht & Quist, the H&Q IPO & Emerging Company Fund, is hoping to pry open the doors for small investors.
"IPOs are shut off from a lot of the retail investing world," said the fund's manager, Ross Sakamoto. "We want (the fund) to get into the next-generation Ciscos and Microsofts."
The fund is in an introductory period through Oct. 28, selling shares for $10 each. On that date, it will start investing its assets and will trade at its traditional net asset value (NAV), said Dave Krim, president of H&Q Fund Management. It is only the second mutual fund to invest in IPOs, he said. (The other is the IPO Plus Aftermarket Fund).
"What we're trying to do is expand access to a broad base of investors," Krim said. "There's certainly a strong interest in IPOs."
While the fund will consider IPOs in any sector, Krim said it's likely that many investments will be in Internet IPOs since there are so many of them on Wall Street.
Sakamoto, who works with Symphony Asset Management, the subadviser, said he doesn't like to talk about the outlook for IPOs since the situation can change day to day. But he said a priority will be to get into promising IPOs at the "allocation level," or Ground Zero.
After that, the fund will use a number of quantitative screens to find companies from their IPO dates up through 18 months.
Sakamoto acknowledged it won't be easy to get in on the allocation level, even for a mutual fund.
Traditionally, brokerages dole out access to IPOs to institutional money managers who are big clients. Because of possible conflicts of interests, the fund can't use Hambrecht & Quist as an entree to IPOs, he said.
"We'll have to trade smartly," Sakamoto said.
Investors should keep in mind that the fund could carry with it a big tax punch, since Sakamoto anticipates an annual turnover rate of 200 to 300 percent.
The fund will hold shares of a stock for five or six months, a lot longer than the customary holding period of just one day for institutional money managers, Sakamoto said. But it's still a short window for the long-term mutual fund universe.
Sakamoto said he hopes the real appeal will be for investment portfolios where the holdings grow tax-free, like 401(k)s and IRAs.
Speaking of IPOs, a new analysis by Value Line Inc. found that many money managers avoid Internet IPOs because the riskiness and other negative factors outweigh the potential for huge gains.
For example, an underwriter may press a manager to hold onto shares after an offering, which may conflict with the manager's obligation to investors to sell, according to Value Line's Mutual Fund Edition. The manager may feel obliged to invest in an IPO in order to not be kept out of other promising offerings.
But investors who want in on Internet IPO action may want to consider the IPO Plus Aftermarket Fund, up 27 percent year to date as of Aug. 31, Value Line found. The fund invests one-third of its portfolio in Internet IPOs, Value Line said.
"Given the inherently risky characteristics of the area, in which even professional money managers get burned, investors will do well to exercise the utmost caution before committing their hard-earned dollars to the sector," Value Line said.
Net fund redux: Goldman Sachs launched its Goldman Sachs Internet Tollkeeper Fund on Friday. The fund will invest in "tollkeeper" companies that build revenue by increasing traffic and raising "tolls," or prices.
The companies include established telecommunications, media and technology firms with strong market share and brand names.
The managers weren't available for comment on Friday.
Who is the typical mutual-fund investor? Middle-aged, married, and college-educated, according to a new study by the Investment Company Institute, a Washington trade group.
The typical fund owner invests through an employer-sponsored retirement plan; has "moderate" financial means with a median household income of $55,000; has $25,000 invested in funds; and has long-term investing goals, the ICI study found.
Wall Street has been feeling the pinch lately as most market indexes head south. So here are some returns for mutual funds that invest in international markets, according to Lipper Analytical Services.
At the top of the list is Northern Institutional International Growth Portfolio, class A shares, up 6.57 percent for the week Sept. 23 through Sept. 30 and up 19.01 percent year to date; followed by Concert Investment Series International Equity Fund, class I shares, up 2.59 percent for the week and up 30.43 percent year to date; and PIMCO International Growth Fund, institutional shares, up 2.18 percent for the week and up 42.56 percent year to date.
On the other end, the three biggest losers are Oakmark International Fund, class I shares, off 2.31 percent for the week and up 27.86 percent year to date; followed by GAM International Fund, class C shares, off 1.59 percent for the week and down 18.55 percent year to date; and Warburg Pincus Institutional Fund, International Equity Portfolio, off 1.48 percent for the week and up 18.03 percent year to date.
-- Staff writer Martine Costello covers mutual funds for CNNfn.com. If you have any comments about mutual funds, you can contact her at cnnfn.interact@turner.com
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