The hot market for initial public offerings this year has boosted the performance of the mutual funds that are the biggest buyers of new companies.

That could be a red flag to investors, though, because the IPO market has been unusually strong lately, and those gains may not last, analysts say.

The average initial public offering this year is up 47 percent from its sale price, according to CommScan LLC. The biggest gainer is Inc., which lets consumers bid online for airline tickets and hotel rooms. The stock is up almost seven times from its offering price.

Still, the IPO market already shows signs of cooling off, especially for Internet issues. Underwriters priced Inc., for example, at $19, and it soared to $60 on its debut May 11. The stock of the online financial news service closed Friday at $26.12 1/2, down 63 percent from its peak of $71.25.

"That's an important lesson for people who are eager to get into the market: Long-term performance hasn't been that hot," said Christine Benz, an analyst for Morningstar Inc.

For now, though, buying IPOs is paying off. The only mutual fund dedicated to buying new stocks, the IPO Plus Aftermarket Fund from Renaissance Capital Corp., has returned 26 percent this year, trouncing the 6 percent return for the Russell 2000 index of small stocks and the Standard & Poor's 500-stock index's 9.1 percent.

IPO Plus Aftermarket had 41 percent of its assets in IPOs, based on its most recent regulatory filing, the highest of any mutual fund, according to Morningstar. The Chicago-based fund research firm considers a stock an IPO for a year after it is issued.

The other funds with big IPO holdings tend to be those that invest in small- and mid-capitalization growth stocks. BlackRock Micro Cap Equity Fund, the second-biggest IPO holder, at 29 percent of assets, posted a 41 percent return this year.

Oppenheimer Enterprise Fund, with 29 percent in new issues, was the only other fund with more than 20 percent of its assets in IPOs. The fund, managed by Jay Tracey, returned 19 percent this year.

The funds that held the biggest percentage of IPOs in a 1996 study by Morningstar fared poorly in ensuing years as the market for small-cap growth stocks faltered, Benz noted. Govett Smaller Companies lost 11 percent in 1996, 13 percent in 1997 and 12 percent in 1998, for example.

IPO managers today say they'll be able to avoid a similar fate. In a down market for new stocks, the IPO Plus fund will benefit from the firm's experience in researching new stock offerings, said Kathleen Smith, co-manager of the $15 million portfolio. Renaissance Capital has provided research on IPOs to institutional investors since 1992.

The fund also is allowed to bet that a stock will decline by selling it short, she said. In a short sale, an investor sells borrowed shares, hoping to buy them back at lower prices to replace the shares and profit from the difference.

Smith noted that as Internet stocks have dropped off their highs, the fund hasn't tumbled by that amount. "We think we're good stock pickers," she said.

Recent purchases include Azurix Corp., an owner of water utilities; TenFold Corp., a maker of software for large companies; and Covad Communications Group Inc., a provider of high-speed Internet access. The IPO Plus fund buys shares both at the initial offering and in the secondary market.

Since IPO-heavy funds can hold some shares and sell others quickly, performance depends heavily on picking the right shares to stay with over the long term.

For individual investors, a fund that invests in IPOs offers a way to get a piece of hot initial offerings that usually are available only to big institutions. Underwriters typically sell shares at the offering price only to big money managers who generate a steady flow of trades, and thus commission dollars, for the underwriter's firm.

Mutual fund companies, never shy about creating new offerings if they think investors will bite, haven't followed Renaissance Capital's lead in creating all-IPO funds.

That's in part because IPOs create a problem for a large fund company. Many large-company mutual funds will take a small piece of the latest small-stock IPO and sell it on the first day to capture the initial pop in price.

If the fund's parent company starts an IPO fund, those small allocations will go to the new fund, depriving managers of existing funds of the performance boost they got from "flipping" IPO shares.

"Fund firms like to have the IPOs to judiciously pass around among their funds," said Geoff Bobroff, a consultant to the investment-management industry in East Greenwich, R.I. "If you had a fund solely focused on it, you've got an internal allocation challenge."

The long-term performance of IPOs might be just as big a reason there aren't more competitors to the Renaissance fund, he said.

"The last 18 to 24 months have been good for significant IPO pops, whereas in the past, IPOs might have been more of a yawn," he said. "It's not a product for all seasons."