The best year for U.S. initial public offerings (IPOs) since the1999 technology boom is driving record money into anexchange-traded fund (ETF) that invests in newly listed companiesfrom Twitter Inc. to General Motors Co.

The First Trust U.S. IPO Index Fund attracted $165 million inthe last three months of 2013, the most for a quarter since itstarted in 2006, according to data compiled by Bloomberg. Thatbrought the total annual inflows to a record $280 million. TheBloomberg IPO Index climbed 64 percent last year, the biggest jumpin 14 years, pushed by gains in Twitter and Hilton WorldwideHoldings Inc. Facebook Inc., which began trading in 2012 and hasthe biggest weighting in the IPO fund, doubled.

Appetite for equities drove U.S. companies to sell $56 billionin new shares last year, the most since 2007, data compiled byBloomberg show. Investors poured the most money in almost a decadeinto equity funds, as Standard & Poor's 500 companies addedmore than $3.7 trillion in market value. Demand for IPOs willremain strong amid a recovering global economy, said Romain Boscherat Amundi Asset Management.

“People's appetite for IPOs is back, and there is a mismatchbetween equity supply and demand,” Boscher, who is responsible forequities at Europe's biggest asset manager, said in an interview onJan. 7. Amundi oversees $740 billion. “There was a sort of queue ofcompanies planning to tap the market as soon as the opportunity wasright. And now with higher prices and low volatility, that time hascome. This is very favorable for IPOs.”

Three rounds of bond purchases from the Federal Reserve havetriggered a 173 percent gain in the S&P 500 since March 2009and the lowest volatility in almost seven years, encouragingcompanies to sell stock. U.S. shares rallied to an all-time highafter the Fed said it would begin reducing the pace of itsstimulus, increasing investors' confidence in the economicrecovery. The Chicago Board Options Exchange Volatility Index,which tracks estimated S&P 500 swings, is near its lowest levelsince February 2007.

S&P 500 futures expiring in March rose 0.1 percent at 9:35a.m. in London today.

Companies raised about $22 billion in U.S. IPOs in the fourthquarter, according to data compiled by Bloomberg. Sales in Europeand Asia rose too, helping global deals triple from the prior threemonths.

S&P 500 companies have never been this valuable, with amarket capitalization of $16.5 trillion, the data show. Investorsadded $244 billion into global-equity funds in 2013, the most since2004, according to data from EPFR Global and Bank of AmericaCorp.

The performance of IPO stocks following their listing showsincreased conviction in the outlook for the broader market, saidWill Hedden at IG in London.

Market Strength

“IPOs are being caught up in the strength of the market,” saidHedden, whose company offers investments in recent IPOs such asTwitter and Facebook. “It's been a big feature of the year. Theaverage investor is getting more of an opportunity to get involved,just as IPOs are being more successful. It's becoming more of afocus in the market.”

The number of shares outstanding on the First Trust IPO fundsurged almost 10-fold last year, data compiled by Bloomberg show.There were a total of 8.35 million shares yesterday, the mostever.

The ETF tracks the IPOX-100 U.S. Index, which jumped 47 percentin 2013, the biggest increase since 1999. The gauge includescompanies with a market value of at least $50 million, according toIPOX Schuster LLC, the index compiler. The stocks stay in themeasure for 1,000 trading days following the offering, IPOX founderJosef Schuster said in a phone interview.

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

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

“Your liquidity is going to dry up, you are not going to have asmany IPOs in down markets,” Lutz said in an interview on Jan. 7.“It may also be that venture capitalists and the companiesthemselves will be looking to cash out in a down market, whichcould create more and more of a liquidity problem, more and morepressure.”

No Fading

For Oliver Wallin, who helps oversee $5.6 billion as investmentdirector at Octopus Investments Ltd. in London, demand frominvestors to participate in new listings won't fade out in theshort term as the global economy strengthens.

Banco Santander SA and Blackstone Group LP are among companiesplanning initial share sales. The Spanish bank's U.S. consumerlender subsidiary, which originates subprime loans for new-vehiclepurchases and leases, this month filed to raise as much as $1.56billion in an IPO. Blackstone is seeking to sell shares of its LaQuinta Holdings Inc. lodging chain, according to a Decemberstatement.

“There is just more risk appetite out in the market at themoment and people are prepared to pay more to participate, so we'llsee more of this,” Wallin said in a phone interview. “It's anopportunistic strategy.”

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