Floodgates Open for IPOs

Higher prices and lower volatility lead U.S. companies to issue the most new shares in six years.

The best year for U.S. initial public offerings (IPOs) since the 1999 technology boom is driving record money into an exchange-traded fund (ETF) that invests in newly listed companies from Twitter Inc. to General Motors Co.

The First Trust U.S. IPO Index Fund attracted $165 million in the last three months of 2013, the most for a quarter since it started in 2006, according to data compiled by Bloomberg. That brought the total annual inflows to a record $280 million. The Bloomberg IPO Index climbed 64 percent last year, the biggest jump in 14 years, pushed by gains in Twitter and Hilton Worldwide Holdings Inc. Facebook Inc., which began trading in 2012 and has the biggest weighting in the IPO fund, doubled.

Twitter, the owner of the microblogging service, sold shares for the first time in November at $26 each. It closed at $60.57 yesterday. Hilton, the world’s biggest hotel operator, has climbed to $21.96 from its initial sale at $20 in December. Facebook, the world’s most popular social-networking service, is up 51 percent since its May 2012 IPO price of $38.

The IPO ETF is more prone to losses in worsening market conditions, when there are fewer initial share sales, according to Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore. The ETF tumbled 44 percent in 2008 when the financial crisis roiled markets, worse than the 38 percent decline for the S&P 500.

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