Tech enthusiasts are eagerly awaiting Arm Holdings Plc's initial public offering (IPO), and for good reason—it's the first major tech IPO in two years. Everyone is hoping for a successful launch, which typically means high demand and prices rising in subsequent weeks and months. What's more, those who may want to quickly gain exposure through Exchange Traded Funds (ETFs) may be left disappointed.ETFs typically track an index, and both S&P Global and Van Eck indexes have eligibility requirements in terms of stock domicile, trading history, and market capitalization. Specifically, U.S. companies must be in the S&P 500, and free float must be at least 10%. Arm is a British firm and has a free float of only 9.3%. Additionally, SPDR Americas Research at State Street Global Advisors requires that the sum of the most recent four consecutive quarters' GAAP be positive, along with the most recent quarter.It is possible for Arm to meet the requirements and gain access to ETFs—Softbank, the company's parent, could exercise a greenshoe, which is an over-allotment of stock that could put the free float over 10%. Alternatively, the company could sell additional shares once the six-month lockup period expires.ETFs that track the Nasdaq-100 or specialize in investing in IPOs might be more in reach. The Invesco Nasdaq-100 ETF (QQQ) does not have float or market cap requirements, and the Renaissance Capital IPO ETF (IPO) requires only a 5% free float.While investors may be tempted to buy into the latest hot IPO through ETFs, doing so can be risky and should be discouraged. ETFs offer the benefit of not having to worry about company-specific events, so staying away from specific stock plays may be the best course of action.
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