How you can make 24% returns through IPOs
There is a sector of the Australian sharemarket that has been shooting out the lights with stellar returns and beating all other sectors. It is the initial public offerings (IPOs) of new companies listing for the first time.
While the S&P/ASX has added just 1.6% since January, the 25 IPOs have risen, on average, by 24.7% to the end of May.
This is more than double the gains of last year's IPOs, which rose 11.2% for the same period in 2015. By the end of 2015, the average return caught up and was 23% for the 93 IPOs, according to the OnMarket April-May IPO Report 2016.
IPO returns during May were boosted by technology company Afterpay Holdings, which offers a buy now, pay later service.
Afterpay soared 49.5% over the month, according to Ben Bucknell, chief executive of OnMarket BookBuilds, which runs an IPO app. Technology company WiseTech jumped 30.5% by the end of May after listing on April 11.
Another strong performer was the biggest IPO on the ASX this year, the $1.3 billion plumbing manufacturer Reliance Worldwide Corporation, leaping 25.2% following listing on April 25.
Bucknell says Shark Mitigation Systems, which has devised the Clever Buoy, was another strong performer, returning 7.5% at the end of May after a May 12 listing. Chicken producer Tegel Group held its ground during May after listing at $1.55 and raising $299 million, he says.
The biggest returns were from consumer staple IPOs, which have returned 65% this year, followed by consumer discretionary (up 17.8%), healthcare (13.1%), IT (12.6%) and financials (5.2%). The only negative sector was metals and mining, which slid 5%.
"Australia's IPO market now offers good exposure to a broad range of companies, with more technology and finance companies listing these days, taking over from the resources sector which dominated 10 years ago," says Bucknell.