The IPOX® Week #749
IPOX® Equity Strategies best way to play return to Norm of lower yields.
IPOX® U.S. (FPX): +3.5%; IPOX® Int’l (FPXI): +2.9%; IPOX® EU (FPXE): +3.3%
IPOX® Health Innovation scores big +6.5% as IPO M&A propels stocks.
Quiet August proceeds top $6.2b globally, with $2b raised by U.S. SPACs.
MONTHLY REVIEW: Most IPOX® Equity Strategies soared during a volatile August with IPOX® Trading Sentiment returning to pre-Covid norm. Underlying backdrops were 1) Soaring IPOX® Corporate Fixed Income Prices amid the U.S. rate cut outlook as U.S. government yields continued to retreat as inflation is in check; 2) Good earnings across the universe of our holdings and 3) Speculation about potential Corporate Actions involving respective IPOX® Holdings. In the U.S., the IPOX® 100 U.S. ETF (FPX), leading benchmark for the performance of U.S. domiciled IPOs, extended its YTD gain by +3.48% to +8.25% YTD, outperforming the S&P 500 (SPX), Nasdaq 100 (NDX) and Russell 2000 (RTY) by +120 bps., +238 bps. and +501 bps., respectively.
Big gains extended to Markets abroad: The IPOX® International ETF (FPXI) added +2.94% to +14.64% YTD, while the IPOX® 100 Europe ETF (FPXE) followed the soaring European markets to add +3.32% to +19.20% YTD.
In the cross-section of our portfolios, we believe that at least three developments are noteworthy: 1) Ahead of its 10-year live anniversary later in the year, our IPOX® Nordic Core Strategy (IPND) closed out the month at a fresh All-Time High, adding +1.67% to +24.83% YTD. The portfolio presents a multi-cap and well-balanced active approach to Nordic equities, which we see as the world’s most innovative economic area. Nordic strength has also contributed to fuel the relative gains in our broader IPOX® 100 Europe ETF (FPXE), continuing to underline our case for treating globally traded European IPOs and respective corporate actions separately. 2) Despite the turmoil in Japanese equities during early August, our multi-cap IPOX® Japan Strategy (IPJP) added +2.31% to +14.86% YTD, closing out the month with a massive +523 bps. jump vs. the TOPIX (TPX), key benchmark for Japanese stocks, and tying its YTD performance. With an allocation to unique and cheap small- and mid-cap IPOs and selecting large-caps pursuing corporate actions, our strategy benefited from last month’ big gains in TSE Mothers 250 Index (TSEMOTHR) which jumped +3.21% to a lackluster -5.79% YTD. 3) Amongst our range of thematic strategies, the best performance of the month belonged to the IPOX® Health Innovation (IPHI). On the back of massive gains across select mid-caps, the bespoke active global sector portfolio jumped +6.49% to +11.96% YTD.
STOCKS AND SECTORS IN FOCUS: Lower rates are driving the expectation that large pharma/health care with strong financing capabilities across the risk spectrum is set to continue its voracious appetite for M&A and continue to spin the IPO M&A Wheel globally in the process. Beneficiaries last month were some of our pure-play health care/med tech IPOs including Cambridge/UK-based 05/21 IPO Centessa Pharma (CNTA US: +28.21%), CA-based medical equipment makers 09/21 IPO PROCEPT Biorobotics (PRCT US: +24.76%) and 07/21 IPO RXSight (RXST US: +23.20%), as well as organ transplant therapy-focused 05/2019 IPO MA-based Transmedics Group (TMDX US: +18.14%). Notable are also the big relative gains in mid-caps/small-large caps firms pursuing IPO M&A itself, indicative of potential corporate actions ahead. These included IPOX® Portfolio Holdings IPO M&As Elanco Animal Health (ELAN US: +18.63%), United Therapeutics (UTHR US: +16.04%), Swedish Orphan Biovitrum (SOBI SS: +14.37%), Glaukos (GKOS US: +14.27%) and Tenet Healthcare (THC US: +10.78%). On the back of strong earnings and lessening legal overhang, we also note the comeback in U.S. and British consumer health portfolios traded via beleaguered 05/23 J&J Spin-off Kenvue (KVUE: +18.71%) and 07/2022 GSK Spin-off Britain Haleon (HLN LN: +9.27%). Laggards during August suffered as a result of missed earnings expectations, and mostly involved more seasoned pure-play IPOs such as vacation rental platform operator 12/20 IPO Airbnb (ABNB US: -15.94%), luxury sandals maker 10/23 IPO Birkenstock (BIRK US: -15.58%) and former Berkshire holding cloud services provider Snowflake (SNOW US: -12.39%).
IPOX® CORPORATE BOND UPDATE: The IPOX® Bond Indexes of corporate bonds linked to IPOX® Portfolio Holdings followed the strength in other Corporates and Sovereign debt last month. The IPOX® Aggregate Composite Corporate Bonds Index (IPOXTD), e.g, rose to +3.47% YTD, +82 bps. ahead of U.S. government debt. In the cross-section, the IPOX® Corporate High Yield (IPXUHYG) Portfolio rose to +6.30% YTD, while IPOX® Corporate Investment Grade (IPXULQD) added to +3.26% YTD.
ECM REVIEW AND OUTLOOK: Global new listing activity saw 96 firms raise $6.16 billion last month, with the average debut gaining +18.84% from offer price to Friday’s month-end close. Here, we note strong activity in the Indian market, which saw the largest debuts last month, i.e. electric scooter maker Ola Electric ($734m offer, +55.20%) and baby products firm Firstcry ($502m offer, +37.80%).
While decreased ECM activity during the summer months is expected, it was the quietest August for global debuts since 2015. This year’s summer lull is partly due to the lack of IPOs on China/Hong Kong markets, which have only raised $13.2 billion so far this year, a -74% decline compared to the same period last year.
In contrast, the U.S. market in 2024 is on track to surpass the last two years, with $31.3 billion raised by the end of August, representing a +116.14% increase compared to $14.5 billion during the same period in 2023. However, for August specifically, this uptick is primarily driven by a resurgence in SPAC listings, which accounted for 9 of the 10 largest debuts in the U.S. last month, raising a total of $2.07 billion.
Amid market uncertainty at the start of August, discussions around upcoming IPOs have increasingly focused on the possibility of firms delaying their listings until next year. September is therefore expected to remain relatively quiet, with Abu Dhabi oil company NMDC Energy ($877m) and Malaysia retailer 99 Speedmart ($506m) set to be the largest listings this month. Further large debuts are anticipated in October, including chipmaker Kioxia and Tokyo Metro.
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