IPO VIEW-IPOs year to date, a risky bet pays off

By Lilla Zuill

NEW YORK, Oct 26 (Reuters) - Initial public offerings are considered a risky bet by many that typically gets riskier during volatility in the broader market. But IPOs are outperforming the wider stock market so far this year.

IPO experts also say they can be a good way for investors to diversify their portfolios and there are ways to lessen the risk of participating in these offerings.

Investors have endured a bit of a roller coaster this year. A chart of the bellwether S&P 500 Index .SPX, up about 8 percent year to date, paints a picture of some wild swings.

And the VIX, an index which measures expected fluctuations in the S&P 500, has shot up to levels unseen in five years.

In the face of that volatility, U.S. IPOs have outperformed the S&P, according to Josef Schuster, chief executive of IPOX Schuster LLC, a financial services company that tracks IPOs.

Schuster said his firm's benchmark U.S. IPO index is up 13.4 percent year-to-date, and globally new issues have performed even better.

The index is weighted for market capitalization, but does not include two high profile offerings, Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz) and Fortress Investment Group (FIG.N: Quote, Profile, Research, Stock Buzz) because they are limited partnerships.

Both have come under pressure because of fears the recent tightening of credit could curb their investment activity.

Schuster said their inclusion would have brought the IPO index down a bit.

Hedge fund manager Fortress is up 13 percent from its $18.50 offering price but trading 30 percent below its first day price of $31, while private equity firm Blackstone is 17 percent below its $31 offering price, at $25.62.

But there have also been numerous bright spots.

"In the U.S. market there have been some very good deals like VMware Inc (VMW.N: Quote, Profile, Research, Stock Buzz)," said Schuster.

Software maker VMware gained 76 percent in its first day of trading, and has risen about 120 percent since. Its Aug. 14 debut coincided with a steep decline in the S&P 500.

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"IPOs are the riskiest in the equities spectrum," said Kathleen Smith, Chairman of Greenwich, Connecticut-based IPO research firm Renaissance Capital.