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
Recommended for you
In the latest Meet the Manager profile, Money Management speaks with Michael Skinner, founder and managing director at Blackwattle Investment Partners.
Perpetual has seen AUM rise 6 per cent in the last quarter but the departure of a longstanding JOHCM fund manager led to outflows of $2.2 billion from his strategy.
Global fixed income fund Bentham Global Opportunities has been added to several major platforms, enabling it to be accessed more easily by financial advisers.
Following yesterday’s news about First Sentier Investors closing four investment teams, a second global asset manager has announced it is closing its only dedicated Australian fund.
