IPO Fever
It’s no secret that the IPO market is flying. As shown below, over the last six months, the volume (in dollar terms) of US IPOs has come within about a billion dollars of the 2021 peak, when the SPAC craze unleashed a wave of blank-check companies. Backing out SPACs, this is easily a record period for traditional IPO volumes, and that’s true even if we ignore the monster one-off impact of the SpaceX (SPCX) IPO earlier this summer.
The big five bulge-bracket Wall Street firms have all reported results for Q2, and the IPO bonanza had a big impact on their performance as equity underwriting fees rose 87% YoY. It’s worth noting the torrent of revenue from issuance isn’t limited to equities, with the AI boom’s massive debt sales also helping push up results. See chart below.
Back in 2021, the massive flood of IPOs (led by SPACs) was a response to the huge surge in prices from late 2020 and early 2021. Performance remained strong until the start of the 2022 bear market when the chickens came home to roost, and IPO performance plunged. Using the Renaissance IPO ETF (IPO) as a proxy, the last couple of years haven’t seen dramatic outperformance for recent issues. Even at recent peaks, IPO only outperformed the State Street SPDR S&P 500 ETF (SPY) by about 8% relative to two years ago. In other words, it’s not a specific mania for IPOs drawing new listings to market, unlike 2021.
Over the past year, there was even a prolonged selloff in IPO, which culminated with the peak in oil prices in late March and early April. Recent IPOs caught the broader risk bid since April, but that uptrend has now broken. As shown below, momentum is now to the downside with the ETF breaking below its 50-DMA over the past couple of sessions.
To get an even better feel for how the IPO market has performed, below we show IPO holdings that started trading within the past year. It also holds stocks that go as far back as 3 years ago, but we trimmed the list to look only at recent deals. It’s also worth noting that size screening means that some small, poorly performing IPOs are not eligible for the index the ETF tracks, so there is some selection bias at work. That said, the single-stock breakdown makes for interesting reading.
