CHICAGO (Reuters) – As the founders and backers of Twitter move toward the ultimate tweet – an initial public offering – it’s a good time to ask whether IPOs are good investments.
Can the hot social media buzz surrounding Twitter be sustained for the company to survive a flame-out? While few can accurately predict future earnings growth, management decisions and whether the service can grow and gain more popularity, it’s good to cast a cautious eye on IPOs in general and cast a wider net.
Keep in mind that Main Street and Wall Street investors may have entirely different takes on IPOs. Short-term traders may “flip” the stock after a few days – or even hours – and then move on. Individual investors may be gun-shy about owning IPOs after last year’s botched offering of Facebook. It took a year for investors to recover from the company’s initial price decline.
If you like small- or micro-cap companies for their growth potential, it would make sense to own a passive index of them. The iShares Micro-Cap ETF, for example, tracks the Russell Microcap Index, charging 0.72 percent for annual expenses. The fund is up nearly 37 percent for the year through November 1 and holds companies like Methode Electronics, Multimedia Games Holding and Boulder Brands,.
For a much-broader based fund that holds small companies throughout the world, consider the SPDR S&P International Small-Cap ETF, which has gained 22 percent for the year through November 1. The fund charges 0.59 percent for annual expenses and holds companies like Belimo Holding AG,, Shochiku Co and Rubis.