Why do new floats outperform? (By Andrew Main)

Companies that joined the ASX lists in the first quarter returned considerably more than the Top 200 companies. According to the OnMarket First Quarter IPO Report, they were up 1.3 per cent on the quarter, compared with a 5.4 per cent drop on the ASX200 index – a 6.7 per cent outperformance. What is very notable from the OnMarket survey is that the first day IPO performance has been markedly better still, with investors who subscribed to those floats having enjoyed an average return of 9.2 per cent. Considering that IPOs as a group returned 23 per cent in 2015, it’s a strong show for the start of the year. The question is – why have these new floats outperformed? The key may be that the day a company lists is a tipping point in two particular ways. One, the investors who put their money up for the IPO essentially got a slight discount because they were wearing some risk. And two, the listing process means that the company’s supportive investors and shareholders ... read more: (VIEW LINK)