During the pandemic, the IPO market was on fire. As we transition out of the pandemic? Not so much.
Recent US IPOs have lagged the S&P 500 this year. One ETF which tracks new IPOs, the Renaissance Capital IPO ETF, is up just 2.79% YTD. For comparison, the S&P 500 is up more than 18.6%.
The turn away from new listings has a lot in common with investors’ retreat from growth stocks. Investors are looking for solid stores of value given uncertainty in the markets.
Some have attributed the retreat in new listings to other reasons than stability, citing an abnormally strong IPO market in 2020. Research from Traders Magazine shows that most IPOs actually yield negative returns in the long-run. They also observe that an increasing share of IPOs are coming from companies which have not turned a profit. 😔
With results like these, one has to wonder what kind of demand awaits dozens of companies planning IPOs this year. However, there’s no denying that an unprecedented amount of money in the market is making the decision to go public much easier than usual.