IPO fund leads Australian equities
A fund focused on pre-initial public offering (IPO) equities has led the way for performance in the Australian equities sector during 2020.
According to FE Analytics, within the Australian Core Strategies universe, the Australian equities sector had an average return of 3.95% for the year to 31 December, 2020.
It was a turbulent year for markets due to the COVID-19 pandemic and the ASX 200 finished the year with a 1.4% return.
The best-performers were Perennial Private to Public Opportunities which returned 43.22%, followed by Hyperion Australian Growth Companies (33.31%), APSEC Atlantic Pacific Australian Equity (26.42%), CFS First Sentier Wholesale Concentrated Australian Share (23.32%) and Bennelong Australian Equities (23.18%).
The stated investment objective of the Perennial fund was to “generate a return (net of fees and costs) in excess of 6.5% p.a. over the life of the fund”.
Last year, 74 companies were listed as IPOs and 54 had occurred in the December quarter alone.
In its market commentary, the fund said much of that IPO activity happened in the last 3 months of the year as activity in the first half was impacted by COVID-19 related market volatility.
“Such a crowded IPO pipeline limits the time for proper analysis and due diligence, and was likely buoyed by the overall market rally at the time,” it said.
“We don’t think that level of IPO activity is sustainable as we commence 2021, although pre-IPO activity remains strong.”
Of the 54 IPOs in Q4, the fund only participated in eight, which included Booktopia and Doctor Care Anywhere that were already held pre-IPO.
“Booktopia was particularly pleasing for the fund, with an 89% increase from our entry price to the IPO subscription price, plus a further 13% return since IPO to the ASX closing price at the end of the December quarter,” it said.
“We took a very selective approach towards participating in many of the other IPOs during the quarter, avoiding transactions which were not reasonably priced and/or featured large secondary selldowns.
“This reflects our focus on investing in proven founder-led businesses who wish to transition onto the public markets and then continue to grow strongly.”
The fund said many of the higher profile IPOs did not trade well in the secondary market except for Nuix and Universal Stores.
“The fund did not invest in [Adore Beauty, Cluey, Nuix, YouFoodz, HiPages, Dusk, Harmoney, Top Shelf, Dalrymple Coal and Universal Stores] due to a combination of valuation, deal structure and/or business outlook,” it said.
“We believe that the negative trading experienced by many of these companies will prove to be constructive going forward as it should lead to improved IPO structure and terms in 2021.”
Best-performing Australian equity funds in 2020
AUTHOR
Chris Dastoor
Recommended for you
Record flows into iShares ETFs helped BlackRock’s assets under management reach US$13.5 trillion in the third quarter, but it reported outflows from the APAC region.
Regal Partners has passed $20 billion in funds under management, helped by $723 million in net inflows during the last three months.
Global investment manager Fidante has formed a strategic partnership with a London-based asset manager to secure exclusive distribution rights across the APAC region.
Blackwattle Investment Partners has hired a management trio from First Sentier Investors – who departed amid the closure of four investment teams last year – to run its first equity income offering.
