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The IPOX® Week, September 18, 2017

  • Markets catch up to IPOX during expiration week. China-linked IPOX exposure has big week.
  • IPOX-linked ETFs close at fresh weekly records: “FPX” gains to +17.26% YTD, “FPXI” gains to +39.43% YTD.
  • Global Deal-flow Review and Outlook: IPO window opens as plenty of deals line up.

Markets catch up to IPOX during expiration week. China-linked IPOX exposure has big week. Equities rose during quarterly U.S. Futures & Option expiration and re-balancing, playing catch-up with select IPOX Indexes, which had significantly outpaced markets during the previous weeks. In the U.S., for example, the diversified IPOX 100 U.S. (IPXO) – benchmark for U.S. IPO and Spin-off performance – extended the YTD gain by +1.19% to +16.73%, 39 bps. less than when compared to the S&P 500 (SPX), main proxy for U.S. stocks. The story of the week belonged to the IPOX International (IPXI): On the back of strong gains in firms linked to corporate actions in China and Europe, the benchmark for IPOs and Spin-offs domiciled outside the U.S. rose by +1.85% to +36.18% YTD.

IPOX portfolio holdings in focus. In the U.S., while investors took profits in IL-based U.S. drug maker Abbvie (ABBV US: +2.38%) towards the week-end, significant gains were recorded by car parts maker Spin-off Adient (ADNT US: +10.63%) and lagging Citizen Financial Group (CFG US: +7.16%), real estate information platform operator Zillow (Z US: +6.72%) or explorer Antero Resources (AR US: +6.44%), while payment processor Square (SQ US: +7.43%) extended gains on positive momentum. Big losses in data breach-hit consumer data processor Equifax (EFX US: -24.55%) also pressured IL-based IPOX holding 06/2015 IPO Transunion (TRU US: -12.40%), weakest stock in the IPOX 100 U.S. (IPXO) on the week. Despite weak economic numbers for Mainland China, we note significant gains in select China-domiciled IPOX heavyweights, including blue chip real estate developer China Vanke (2202 HK: +9.86%) or logistics firm JD.com (JD US: +9.14%), while news that parent company Bayer (BAYN GY: +1.47%) would continue to divest of its interest propelled IPOX holding specialty chemicals maker Covestro (1COV GY: +8.13%) after recent weakness. We note big losses in 04/2017 IPO Spanish auto parts maker Gestamp (GEST SQ: -9.46%) after disappointing quarterly results.

IPOX-linked ETFs close at fresh weekly records: “FPX” ETF gains to +17.26% YTD, while “FPXI” ETF gains to +39.43% YTD. With developed markets rising strongly across sectors and size/style segments during U.S. expiration week, the diversified USD million 861 IPOX 100 U.S.-linked First Trust Equity Opportunities ETF (FPX) added +1.04% to +17.26% YTD. While focusing on non-U.S. domiciled exposure to IPOs and Spin-offs, the younger IPOX International (IPXI)-linked First Trust International IPO ETF (FPXI) added a massive +2.93% last week, extending its YTD gain to +39.43%.

IPOX Price Returns (%) Last Week Q2 2017 YTD 2017
Exposure: Global/International (xUS) (USD)
IPOX Global (IPGL50) 1.37 5.54 25.24
IPOX Global (IPGL30) 1.44 8.07 26.00
IPOX International (IPXI)* 1.85 9.24 36.18
Exposure: United States (USD)
IPOX Composite U.S. (IPXC)* 2.50 7.44 27.49
IPOX 100 U.S. (IPXO)* 1.19 3.86 16.73
IPOX 30 U.S. (IPXT) 0.97 4.62 18.19
Exposure: Europe/Nordic Region (EUR)
IPOX Europe (IXTE) 1.31 4.95 19.06
IPOX Nordic (IPND) 0.23 8.64 15.49
Exposure: Asia-Pacific/China Region (USD)
IPOX Asia-Pacific (IPTA) -0.76 2.99 15.91
IPOX China C. (IPXUCHCHP)* 2.99 10.06 40.85
IPOX China (CNI) 2.99 4.62 33.04

* Basis for ETPs: FPX US, FPX LN, FPXU FP, FPXI US, TCIP110 IT) and CME Futures (e-mini IPOX 100 U.S. Index Futures [Commodity trading symbol: IPOZ7]).

Global Deal-flow Review and Outlook: IPO window opens as plenty of deals line up. 4 notable accessible global (non- China A shares) firms debuted last week with the average (median) firm adding +7.04% (+6.66%) based on the difference between the final offering price and the week’s close. In the U.S., significant deals lined up to debut for trading this week include Hangzhou, China-based logistics firm BEST Inc. (BSTI US), Argentina-based online travel services provider Despegar.com (DESP US) or Pudong, China-based biotech Zai Lab (ZLAB US). Focus abroad is on the debut of Stellenbosch, South Africa-based Steinhoff International (SNH GY: -6.06%) carve-out global retailer Steinhoff Africa Retail Ltd. (SRR SJ), the largest IPO by a South African company in almost two years.

Select IPOs traded (week: September 11, 17) Country
 BHCC Holding Ltd.  Singapore
 Mitsubishi Estate Logistics REIT Investment Corp.  Japan
 Pearl Abyss Corp.  S. Korea
 Social Capital Hedosophia Holdings Corp.  U.S.A.
IPOs set to debut (week: September 18, 17) Country
 BEST Inc  China
 Celcuity LLC  U.S.A.
 Compass Minerals International Inc  U.S.A.
 Despegar.com Corp  Argentina
 Kiddieland International Ltd  Hong Kong
 Krystal Biotech Inc  U.S.A.
 Sisram Medical Ltd  Israel
 Steinhoff Africa Retail Ltd  S. Africa
Zai Lab Ltd China

Josef Schuster is the founder of IPOX Schuster LLC (www.ipoxschuster.com), a Chicago-based Financial Services company specialized in Financial Products Design related to Initial Public Offerings and corporate Spin-offs. He is the chief architect of the IPOX Indexes, a global index group initiated in 2004 that encompasses an index technology allowing for asset-allocation focused exposure to the “going public” effect associated with global IPOs and Spin-offs. Mr. Schuster earned his Bachelor of Arts degree in Business Administration in 1994 from the European Business School, London. Mr. Schuster was also awarded a MSc in Accounting and Finance in August 1996 and a MPhil / PhD in Accounting and Finance in June 2003 from the London School of Economics.

ABOUT THE IPOX INDEXES: Through the range of the IPOX Indexes, market participants have an innovative opportunity to navigate the global IPO and Spin-off market and to track the performance of this economically significant sector more accurately and comprehensively than with any other index group. The IPOX Indexes accomplish the systematic indexation of the aftermarket performance of the IPO and Spin-off sector, while – at the same time – preserving the benefits of diversification. Linked to the IPOX 100 U.S. Index, for example, IPOX-linked investment products available to investors include the pioneering USD million 600, 5-star First Trust U.S. IPO ETF (ticker: FPX). On February 18, 2016, CME Group, the world’s largest exchange operator, launched e-mini IPOX 100 U.S. Index Futures, offering market participants for the first time a tool to manage the aggregate risk associated with U.S. IPOs and Spin-offs.

Disclosure: the author has no position in the stocks mentioned.

This article is provided for educational purposes only and is not considered to be a recommendation or endorsement of any trading strategy. The author is not affiliated with Lightspeed Trading and the content and perspective is solely attributed to the author.

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