High volatility brings IPOs into question
It was a busy time in the market with 26 initial public offerings (IPO) larger than $100 million in 2014 but only half of those had a positive return on listing day, according to State Street Global Advisors (SSGA) Active Australian Equities Update.
The report found less than half returned greater than the market return in their first month.
"This is not surprising with some large market drawdowns and volatility picking up since October," the report said.
SSGA's head of active quantitative equity Asia Pacific, Olivia Engel, said the average $100 million IPO volatility was 1.8 per cent, 1.4 more times than that of each stock in the 20 leaders' index.
"We prefer more certainty around expected returns, and (usually but not always) lower absolute volatility with stocks we hold in the portfolio. IPOs are unlikely to provide us with that certainty, and the evidence we have seen in the recent years reinforces that approach."
While deals worth more than $500 million (there were six in 2014) posted a positive market relative return in the first month of listing, in 2013 all IPOs greater than $500 million returned negatively.
Engel added that IPOs have to give even higher expected returns than other listed stocks to make into their portfolio.
AUTHOR
Malavika Santhebennur
Recommended for you
Franklin Templeton has announced it will close its Australian Core Plus Bond Fund, having changed two fixed income funds in its Brandywine range last week.
Investment solution provider Channel Capital has appointed James Archer as its latest distribution director, joining from Pinnacle Investment Management.
Bennelong Funds Management has signed a memorandum of understanding with US private credit manager Monroe Capital to distribute its products in Australia.
Global equity manager Talaria Capital has appointed a Sydney-based sales director as it grows its distribution presence across Australia.
