FANG-free IPOX Indexes decline during 2018, perform in line to better than benchmarks. Drop in heavily weighted constituents weighs on select IPOX Index performance. The rise of Macro Factors (Uncertainty regarding Tariffs & Trade, Geopolitics, Interest Rates and Central bank Policy & Regime shifts etc.) at the expense of Company Fundamentals in driving stock prices dented the performance of global equities during 2018, with the IPOX Indexes suffering losses and reversing some of the big gains recorded during smoother 2017. With its 14.71% exposure to (lagging) China-linked equities at the end of the year, the IPOX Global 50 (IPGL50), e.g., fell -11.37% during 2018, 18 bps. more than when compared to the global benchmark. A number of IPOX Indexes recorded significant relative gains during 2018: e.g. the IPOX Asia-Pacific (IPTA) – composed of large and liquid IPOs and Spin-offs traded across Asia-Pacific – bucked the big declines amongst the regional benchmarks, shedding just -3.21% in 2018, outpacing regional equities by a large +1106 bps. Exposure to specialty growth stocks also propelled relative gains in the IPOX International (IPXI) which fell -13.41% in 2018, 299 bps. less than when compared to its international benchmark. In the U.S., plenty of buy-out activity amongst IPOX portfolio holdings including biotechs Avexis (AVXS US: +96.83%) and Bioverativ (BIVV US: +94.16%), pet food maker Blue Buffalo (BUFF US: +21.96%) or software maker MuleSoft (MULE US: +90.03%) was unable to fully mitigate the impact of declines in some desolate Spin-offs (and IPOs), such as Buffett-held, 5.8% p.a. yielder Ketchup maker Kraft Heinz (KHC US: -42.29%), with the FANG-free, all-cap momentum IPOX 100 U.S. (IPXO), declining -8.80% in 2018, less than U.S. Small- (RTY: -12.18%) and Mid-caps (MID: -12.50), but more than the S&P 500 (SPX: -6.24%), benchmark for U.S. large-caps.
During its first year of live trading, IPOX Market Neutral records strong gains across the board. We note a good first year of live trading for the IPOX Market Neutral, an absolute return strategy focusing on equities trading in the IPOX Global Universe. Amid near record deal flow through Q3 2018, gyrations in spread relationships propelled the strategy as a whole (and each regional strategy leg) to close out 2018 near its all-time high, underlying the potential of using IPOs and Spin-offs as a source of uncorrelated all weather returns. (For details: contact [email protected] ).
Select IPOX-linked investment products performance: Following a gain of +27.03% during 2017, the IPOX 100 U.S. (IPXO)-linked First Trust U.S. Equity Opportunities ETF (FPX), e.g., declined -8.34% in 2018, while the IPOX International (IPXI)-linked “FPXI” ETF shed -13.06%, after gaining a strong +39.31% in 2017. Exposure to a broader set of (outperforming) small-cap IPOs helped the actively managed Catalyst IPOX Allocation Fund (OIPAX) to trim its 2018 decline to just -4.85%.
|IPOX Indexes Price Returns (%)||2016||2017||2018|
|IPOX® Global (IPGL50) (USD)||-2.50||28.59||-11.37|
|IPOX® International (IPXI)* (USD)||-4.63||37.80||-13.41|
|IPOX® Composite U.S. (IPXC)||7.24||33.64||-7.59|
|IPOX® 100 U.S. (IPXO)*||5.89||26.04||-8.80|
|IPOX® 30 U.S. (IPXT)||8.44||26.63||-10.28|
|IPOX® 30 Europe (IXTE) (EUR)||0.18||19.27||-13.46|
|IPOX® Nordic (IPND) (EUR)||-1.59||17.91||-15.45|
|IPOX® 100 Europe (IPOE)* (USD)||-4.55||41.77||-16.60|
|IPOX® Asia-Pacific (IPTA) (USD)||-1.96||23.30||-3.21|
|IPOX Comp. China (IPXUCHCP) (USD)||-3.73||42.57||-23.78|
|IPOX® China (CNI) (USD)||-10.21||37.67||-22.83|
|IPOX® Japan (IPJP) (JPY)**||-1.98||15.32||-13.70|
|IPOX Market Neutral Price Returns (%)||2016||2017||2018|
|IPOX Market Neutral Global (USD)***||0.64||9.45||11.90|
|IPOX Market Neutral U.S. (USD)***||2.24||6.13||6.68|
|IPOX Market Neutral Europe (USD)***||4.32||18.56||19.85|
|IPOX Market Neutral Asia-Pacific (USD)***||-6.42||1.41||11.06|
* Basis for ETPs: FPX US, FPX LN, FPXU FP, FPXI US, TCIP110 IT, CME-traded e-mini IPOX® 100 U.S. Futures [Symbol: IPOH9]; **Live since 07/18; *** Live since 03/18.
IPOX 2018 Deal flow Statistics: Amid strong initial returns, U.S. exchanges attract most global New Listings; Asia-based exchanges lead by deal size. A total of 990 (vs. 1095 in 2017) accessible firms (non-China A Share IPOs and Spin-offs) debuted in 2018 across the global regions, with the average (median) equally-weighted firm adding +24.06% (+5.00%) based on the difference between the final offering price and its first close. In the cross-section, median initial returns for IPO investors in the U.S. (+4.80%) significantly exceeded median initial returns for initial investors in IPOs in Hong Kong (+2.20%), across Continental European Markets (+1.45%) or for IPO investors focusing on deals in the Nordic Region (+0.00%), underpinning the more favorable initial sentiment for deals on an exchange in the U.S. Amid this better sentiment and the relative weakness in equities outside the U.S., “going public” on a U.S. exchange remained the favored choice amongst global issuers in 2018, with the NYSE and NASDAQ U.S. taking the lion share of global New Listings activity in terms of number of listings (22.12%), followed by the Hong Kong Stock Exchange (19.29%), the Tokyo Stock Exchange (8.99%) and the Korean Exchanges (7.78%). The largest deals, however, belonged to companies trading outside the U.S. including the unconventional fixed price IPO of Japan’s leading mobile phone operator Tokyo-traded Softbank Group (9434 JP), followed by the massive China-linked IPOs of phone maker Honk Kong-traded Xiaomi (1810 HK) or telecommunication infrastructure operator China Tower (788 HK). Deal flow across the accessible regions remained broadly diversified with firms in the Financial (including REITs) (18.79%), Consumer Discretionary (18.38%), Information Technology (16.36%), Health Care (15.45%) and Industrial (15.40%) sector making up the bulk of New Listings activity by number of companies (84.38%).
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