Many small-company stock mutual funds are making big bets on the market for initial public offerings (IPOs).

Oppenheimer Enterprise and Blackrock Micro-Cap recently had an estimated 29 percent of assets invested in companies that first sold shares to the public during the past 12 months, reports Morningstar Inc., an industry research firm.

John Hancock Small Cap Growth had about 15 percent of its money in IPOs and Neuberger Berman Millennium had 13 percent, according to Morningstar.

Hefty IPO holdings should be a warning sign for investors because the new stocks can add to the volatility of already risky small-company funds, analysts say.

"IPOs have provided a pretty good pop to these funds' performance but our experience has shown the IPO market can sour pretty quickly," said Christine Benz, a Morningstar analyst.

The fund managers don't disagree. Jay Tracey said his Oppenheimer Enterprise is an "aggressive small-cap" fund that invests a portion of assets in newly issued stocks.

That doesn't mean "IPOs are XXX-rated investments," Tracey said. "What makes the United States economy so dynamic is the entrepreneurial zeal with which businesses are created."

The $620 million Oppenheimer Enterprise Fund recently bought shares of several IPOs. Overall, the new shares have helped the fund gain 40 percent so far this year, exceeding the average 10 percent return of rival small-cap stock funds and lagging the 67 percent return of the Bloomberg IPO Index, which measures how stocks perform in their first year of public trading.

IPOs Oppenheimer bought include Argosy Education Group Inc., the operator of schools that offer advanced degrees in specialties such as clinical psychology; Corporate Executive Board Co., a research firm that advises companies on how other businesses solve problems; and MicroFinancial Inc., a leasing company.

Not all of the IPOs worked out. Tracey purchased Argosy in March and the stock has fallen 41 percent since then.

The $60 million Neuberger Berman Millennium owns recently issued shares such as Exchange Applications Inc., a seller of business software to customers such as AT&T Corp., said Michael Malouf, the fund's manager.

"We're always looking for IPOs," Malouf said. "That's where you'll find the dynamic companies of tomorrow."

Neuberger Berman Millennium has gotten off to a fast start since opening in October. The fund is up 16.5 percent in the past three months.

Dick Cantor, executive principal at New York-based Neuberger Berman Management Inc., said the Millennium fund would be a top-notch performer this year with or without the IPOs.

Some fund managers will buy shares of an IPO at the offering price and then take a fast profit when trading begins and the stock rallies.

But Tracey of New York-based OppenheimerFunds Inc. said, "We hardly ever 'flip.' " And Neuberger's Malouf said the same.

The $720 million John Hancock Small Cap Growth Fund hasn't performed as well as Oppenheimer Enterprise and Neuberger Berman Millennium this year. It's up 15 percent.

"We're a small-cap growth fund so we can't ignore the IPO market," said manager Bernice Behar. The amount of shares the fund gets in IPOs, however, is too small relative to the fund's assets to have a "significant" effect on performance, she said.

One of the IPOs Behar bought for the fund was AboveNet Communications Inc., a seller of services that speed businesses' transmission of data over the Internet.

Behar said she bought shares at about 10 soon after the company went public in December. The stock soared to a high of $75.12 1/2 in mid-April and then declined to below $26 in mid-June. Now, AboveNet is being acquired by Metromedia Fiber Network Inc. and the stock is at $40.18 3/4.