Stocks of recently listed companies in the US are surging this year at nearly double the S&P 500 index’s performance.
But the returns generated by retail buyers of IPOs still lag behind those of funds and other professional investors who buy shares in start-up companies in private markets and enjoy the “pop” of first-day trading.
The FTSE Renaissance US IPO index, which tracks the share performance of companies that have gone public in the past two years, is up 19 per cent in the year to date.
It is on track for its best quarterly performance since the second quarter of 2009, when the market started to recover from its post-crisis bottom. The broader S&P 500 index is up 11.5 per cent so far this quarter.
The most heavily weighted company in the index, General Motors, which completed its $22bn equity offering at the end of 2010, is up 22.7 per cent this year.
Also among the outperformers are Michael Kors, the fashion label, up 67 per cent in the year to-date, and Jive Software, the social networking software maker, up 64 per cent.
Poor performers include Groupon, the online coupon seller (down 13.6 per cent), and Arcos Dorados, the Brazilian McDonald’s franchisee (down 10.1 per cent).
Despite worries about the competitiveness of the US IPO market, it is outperforming others. Recent IPOs in Hong Kong and mainland China are up 15.3 per cent and those in Europe are up 13.1 per cent, according to FTSE Renaissance.
However, many traders are still losing out on some large IPO gains. The IPO index tracks the shares after their first day of trading and the so-called “pop” in value. The average US IPO this year has risen 18 per cent in its first day of trading, according to Dealogic.
Joseph Schuster, president of IPOX Schuster, which runs managed IPO funds, said: “Obviously, you miss out sometimes. But the effect of first-day ‘pop’ tends to fade over time, and if you screen companies for strong fundamentals.”
Companies are also going public at a later stage of development, when growth and share-price gains are smaller. The IPO Task Force, a group of industry experts, estimates that the average time for a start-up to go public has gone from five years in the 1990s to more than nine years.
While the FTSE Renaissance US IPO index was down 21.4 per cent last year, holders of pre-IPO shares saw an average return of 70.7 per cent if they sold in the initial offerings of groups such as LinkedIn, Groupon, Zynga and Yandex, according to Nyppex, an illiquid securities consultancy.
Christopher Nagy, managing director at TD Ameritrade, an online retail brokerage, said: “The way the process is structured today, the retail investor winds up at a disadvantage to the institutional investor who has access to offerings before they publicly price.”
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