All the survivors from a brutal 400 days of Aussie IPOs and ETF launches

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• New ETFs up an average of +1.3% over 12 months, over two thirds have made gains
• The average performance of new IPOs in past 12 months was circa -15%, with 21 of 68 in the green
• Prime Value AM says the two are like apples and oranges, while Stockspot loves a simple ETF

There’s no doubt 2022 was tough for global equity markets as central banks hiked rates to contain rising inflation, striking fears of an economic slowdown and recession.

Geopolitical tension with the war in Ukraine plus the ongoing fallout from the COVID-19 pandemic put further pressure on markets.  While 2023 is looking more positive, markets remain volatile and consequently companies have been shying away from listing on the Aussie bourse.

However, the same can’t be said for ETFs, which continue to rise in numbers and have become increasingly popularity among investors.

What’s an ETF?

Firstly a quick recap.

ETFs are an investment vehicle that can contain various financial assets including shares, bonds and even commodities.

Among shares, ETFs can invest in equities of various locations such as emerging markets, a sector like technology or track an index, like the ASX 200 or S&P 500.

There are two types of ETFS.

1. An actively managed ETF is where a fund manager makes decisions about the makeup of the underlying portfolio
2. Passive ETFs where fund manager holds a portfolio of assets aimed at generating a return similar to the underlying index it is tracking

ETFs are bought and sold through an exchange and have become a popular alternative to traditional managed funds.

Australia’s big ETF players include BetaShares, Vanguard, VanEck, iShares and Global X.

READ: LIC vs ETF: Six differences between them and why one has become more popular

The first year of the Covid-19 pandemic 2020, where markets got initially rattled but went on to perform strongly as governments globally implemented strong stimulus packages, there were 29 launches of ETFs launched compared to just 11 IPOs. 2020 also saw a surge in young and first-time investors entering the markets.

There was a strong resurgence in IPOs in 2021 but performance of these market debutantes were lower.  2022, performance-wise was also not a strong year for IPOs.

ETF launches have been steadily rising each year.

With the help of the cracking team at online investment advisor Stockspot, (where they build with investors custom portfolios using ETFs), Stockhead’s prepped a list of the 48 ETFs and their performance listing between April 1, 2022 and April 28, 2023 (last trading day for the month).

We also have a list of all the 68 IPOs on the ASX for the same period and their performance.

ETF Performance

Swipe or scroll to reveal full table. Click headings to sort:

Source: Stockspot

The average performance of new ETFs has been 1.3% with 33 of the 48 ETFs  (~69%) which launched during the period remaining in green territory.

The maximum performance was 19.4% by the Global X Copper Miners ETF (ASX:WIRE) . 

The worst performing ETF since launch has been the 3iQ CoinShares Bitcoin Feeder ETF (CBOE:BT3Q), which has since closed.

Yes, Crypto ETFs that launched less than a year ago have already shutdown including BT3Q and 3iQ CoinShares Ether Feeder ETF (CBOE:ET3Q)

Crypto ETFs Cosmos Purpose Bitcoin Access ETF (CBOE:CBTC) and Cosmos Purpose Ethereum Access ETF (CBOE:CPET) along with  and the 3iQ CoinShares Bitcoin Feeder ETF (CBOE:BT3Q) were shut down not long after launching as the cryto winter of 2022 took a toll.

READ: Aussie crypto ETFs are shutting their doors – but here’s why the biggest players are keeping the faith

IPO Performance

Source: Dealogic, ASX &Iress. Excludes spin-offs, compliance/dual listings where no capital raised, stapled securities and debt listings.

Tough times for going public

There haven’t been too many, so let’s recap…

An initial public offering (IPO) is a stock launch – a public offering in which shares of a company are sold to institutional investors and usually also to retail mum and dad investors.

The IPO bit refers to the process where the private companies sell their shares of the company to the public to raise equity capital  transforming the once privately-held company into a public-owned company.

An IPO is typically underwritten by one or more investment banks.

That said, those banks haven’t been stepping up lately either.

It’s certainly been a tough year of performance for ASX IPOs.  The average performance of new IPOs was -15% with just 21 of the 68 companies (31%), rising in value and the rest falling into the red.

IP OKs

If you happened to buy into Southern Cross Gold (ASX:SXG)  then you have reason for a high five. SXG tops the chart of maximum performance, soaring 225% since its launched on May 16, 2022.

One year to the day since listing SXG celebrated the anniversary by announcing it had reported the deepest mineralisation so far at its Sunday Creek gold-antimony project.

At a depth of 889.6m down hole, drilling of hole SDDSC064 intersected 1.2m at 121.8 grams/tonne gold.

SDDSC064 is a 115m down-dip extension from hole, SDDSC061, which also returned 12m at 7.4g/t gold including 0.3m @ 249.5 g/t gold.

Also performing well is LGI (ASX:LGI), which is focused on solving gas emission issues for landfill sites while generating dispatchable, distributed and renewable electricity and creating Australian Carbon Credit Units (ACCUs).

LGI has a current portfolio of 26 projects with long-term contracts, across the Australian eastern seaboard, and says it has a strong pipeline of growth opportunities, investing capital to optimise the conversion of biogas to revenue.

The SXG & LGI share price today:

Comparing apples and oranges

Prime Value Asset Management portfolio manager – equities Richard Ivers told Stockhead IPOs and ETFs are very different.

“You are comparing apples and oranges,” he said.

“They are very different to compare with a very different risk profile for both.

“With an IPO you are investing in an individual stock.”

Ivers said the ASX IPO market has been very quiet with few quality IPO’s which is illustrated by the market cap of the companies listed during our time frame.

“The vast majority of IPOs have been exposed to resources and they are tiny so you’re either going to win big or lose big and in a lot of cases it appears people have lost big,”  he said.

“The ETFs should be much lower risk because you’re taking a basket of a whole lot of stocks and some listed are the S&P 500 which are the biggest 500 companies in the US, with the average of size of tens of billions of dollars each.

“These IPOs have market caps of less than $20 million so the risk profile is so different.”

Richard adds that because of weaker markets, investors have been very cautious about investing in IPOs – there’s a few disadvantages to investing in an IPO investors should consider.

“When you invest in an IPO you may have to wait a few weeks or months so you’re hoping the markets don’t fall away in that tine,” Ricard told Stockhead.

“You don’t really know the company as well because they don’t have the history of being listed on the market.

“You have to look at the reason for the IPO sometimes it’s the existing owners selling down their holdings in the business which is often a sign they are trying to exit for a reason.”

Conversely, if a company is raising new money for growth and there’s no selldown, Richard says that can be a good sign.

“In the current market where people are skittish and a bit cautious its very hard to do IPOs and there’s been hardly any of quality, so it’s been a tough period,” he said.

Sometimes vanilla is best

Stockspot Senior Manager – Investments and Business Initiatives Marc Jocum told Stockhead ETFs can be a better tool to offer exposure to more than one company rather than an IPO thus diversifying their risk.

“What these figures show is that for most retail investors, they are better off investing in a plain, simple ETF instead of investing in IPO stocks,” he said.

“We’ve been researching ETFs for more than 10 years now and warning investors for as many years about the dangers of chasing ‘trendy’ thematic ETFs.”

Jocum said Stockspot’s 2022 ETF Report showed how investors in niche/trendy thematic ETFs lost over $100m in one year.

“Whilst we don’t offer these ETFs at Stockspot nor do we recommend them to our clients, we warn clients that do want to invest in them that these ETFs should only account for a small part of their portfolios, with the majority of their portfolio invested in a low-cost diversified strategy.”

Jocum said investors should be cautious and wary of chasing after hot trends or fads in the market, as these investments can be volatile and carry a high level of risk.

“Instead, we recommend building a portfolio that is well-balanced and diversified across multiple asset classes, with a focus on low-cost ETFs that provide exposure to Aussie shares, international shares, emerging market shares, bonds and gold.

“By investing in a broad range of asset classes, such as stocks, bonds and gold, investors can spread their risk and reduce the impact of market volatility on their portfolios.”

READ NOW: IPO Wrap – ASX IPO pipeline looks good for the second half of 2023, says ASX GM of Listings

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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