A new way to invest in IPOs

Adam Jeffery | CNBC

An ETF for IPOs? It happens tomorrow. Renaissance Capital, which provides institutional research on newly public companies, tomorrow will be launching an exchange-traded fund (ETF) for IPOs.

Why would someone want to invest in IPOs? It's a way to get access to newly public companies. And because it's market weighted, you get exposure to the biggest companies. Among its top holdings as of September 30, 2013, are a 11.0 percent position in Facebook (FB), a 9.8 percent position in Michael Kors Holdings (KORS), and a 4.5 percent position in cloud-based HR platform Workday (WDAY).

Twitter is likely to be a fast entry into the ETF as well.

And remember, because they are new companies they are not in the , so you are not duplicating some big-cap index. You get access to hot companies before they are in the major indices.

Another selling point: you're investing in sectors that are hot. Biotech, cloud computing, enterprise technology, certain consumer areas (Potbelly) have all been hot, so you are over weighting toward sectors that--by definition--are performing well, or they would have a tough time going public.

The Renaissance IPO ETF (IPO) will track the Renaissance IPO Index, which is a portfolio of the largest, most liquid U.S.listed IPOs in the last two years. New companies are included in the index on the fifth day of trading and are removed after two years when the IPOs become seasoned stocks.

And, of course, because you get an ETF that is based on an index, the cost is low: 60 basis points (0.6 percent).

One caveat: investing in IPOs can be a volatile business. IPOs are working great this year--the Renaissance IPO Index is up 40 percent, far outperforming the S&P 500. But during periods of high volatility (like 2008-2009) they will underperform the market.

Appropriately, there will be two big IPOs trading tomorrow on the Big Board. The largest IPO of the year, a $3 billion offering from Plains GP Holdings (PGAP), a limited partnership that invests in oil and gas pipelines, is looking to price 128 million shares at $22-$25, far and away the largest offering of the year.

Also debuting tomorrow: life science cloud-based software firm Veeva Systems (VEEV) has raised its range from $12-14 to $16-18 and the overall deal size has increased 31 percent.

By CNBC's Bob Pisani