GETTING IN ON IPOS

AS BIGGIES DEBUT, YOU CAN INVEST, TOO

By Tracy Byrnes

May 7, 2006 -- Getting first-day shares of a company’s initial public offering is a lot like trying to get tickets to see Julia Roberts in “Three Days of Rain” - only people in the “know” can get’em, and those who get caught up in the frenzy may be disappointed.

But with some big-name consumer brand IPOs hitting the market this month - such as Burger King, MasterCard and Vonage, the Internet-telephony provider - you can’t help but wonder if you can get in on the action.

After all, when McDonald’s spun off Chipotle Mexican Grill, its shares doubled in price on the first day of trading. Tim Horton’s doughnut chain? Its shares popped 22 percent on Day 1.

Those impressive first days leave an indelible mark on investors’ minds - despite some clunkers. A prime example of the ebb and flow of hype is Baidu.com, the Chinese Google, which opened around $60 back in August 2005, flew to $137 a few days later, but is now resting comfortably at around - you guessed it - $60.

Unless you have an account with a broker helping the company go public - meaning it will no longer be a private company and will start trading on a stock exchange - first-day IPO shares are hard to score.

These days, the average first-day pop is only 11 percent, according to Renaissance Capital. So don’t let that pop become your driving motivation. Buy into these companies only if you believe in them.

But you still need to do some homework.

Back in the late ‘90s, every tech company with a microchip was going public, and people were scrambling for shares with zero knowledge of the companies.

At least with Burger King and MasterCard, you have some knowledge. At a minimum, you know the Whopper has been a crowd-pleaser since you were a kid, and MasterCard has been charging away for 40 years.

With that kind of longevity, you’ll be able to review at least five years of past financial data, which is what you need to make a sound investment decision, says Bob O’Hara, vice president of Development at BetterInvesting.

Once you’ve found an IPO you’d like to own, see who’s taking it public. If it’s your broker and you’re a good commission-paying customer - meaning your money’s not just parked in mutual funds - you might be able to get in on it.

If not, try the mutual fund world.

For direct exposure, you can try Renaissance Capital’s IPO Plus Aftermarket Fund, which is up about 13 percent this year. It focuses solely on IPOs, which could be risky, so use it as a small percentage of your well-diversified portfolio.

Other funds focus more on the small-cap world, which is where many IPOs germinate. The Adams Harkness Small Cap Growth Fund, for example, run by veteran Mary Lisanti, is up almost 16 percent in 2006.

The Federated Kaufmann Fund also focuses on small-cap offerings but plays in the IPO market and is up about 10 percent for the year.

And finally, check out the First Trust IPOX-100 Index Fund, which launched in April and purports to mirror the U.S. IPO market.

But know that you’re not getting first-day pops here. Newly issued securities aren’t added to the IPOX index until at least seven days after they hit the market. But with an expense ratio of 0.6 percent, its worth checking out.

So go see Julia Roberts, and take a shot at an IPO. As long as you go in with realistic expectations, you won’t be disappointed.