The ‘going public’ event has effects on corporations, which are truly unique and long-run in nature. It is also difficult to value newly listed companies because of the high level of information asymmetry at the IPO date.
This is due to institutional constraints (short selling restrictions, no historical beta, quiet period, and limited analyst coverage). As companies progress, once being listed, this information asymmetry works itself out in share price movements.
These underlying dynamics result in a large dispersion in long-run IPO returns (over time many IPO companies will eventually have underperformed and relatively few companies will have overperformed).
Exposure into the few overperforming companies, however, can produce substantial asset allocation benefits. IPOX provides an index methodology that seeks to unlock these asset allocation benefits.
An underlying force affecting the IPO markets has also been accounting reforms under Sarbanes-Oxley (“SOX”). This has resulted in higher quality of disclosure, which also means greater company transparency, an important factor especially for IPO companies.
The global IPO and spin-off market is economically significant and represents the lifeblood of equity capital markets (ECM) activity. Since 1995, an average of U.S. $500 billion per annum in market cap has been created through IPO and spin-off activity globally.
IPOs and spin-offs represent one of the most dynamically performing equity classes and offer a unique way for portfolio enhancement if tracked separately.
The IPOX Global Composite Index serves as a semipassive benchmark for the performance of IPOs and spin-offs globally.
It is a fully market cap–weighted index that is dynamically rebalanced and is constructed and managed to provide a broad and objective view of global aftermarket performance of IPOs and spin-offs during the first 1000 trading days.
With an average market capitalization exceeding U.S. $3 trillion, the IPOX Global Composite Index does not target a specific number of securities and sectors and the number of constituents is time varying.
The respective subindexes, such as the IPOX-30 Global (all markets) Index, the IPOX-30 U.S. Index, the IPOX-30 Europe Index, the IPOX-30 Asia-Pacific Index, or the IPOX China 20 Index, pool the most liquid, largest, and typically best performing companies ranked quarterly in the underlying IPOX Global Composite Index. To ensure diversification, the maximum weighting of constituents in the IPOX subindexes maximum weights is capped at 10% on the quarterly rebalancing date.
Because of the exposure into the largest IPOs and spin-offs, the IPOX subindexes represent between 35 and 70% of all market capitalization created through IPO and spin-off activity in the underlying world region.
The quarterly rotation and rebalancing allows for early coverage of the new growth segments and replacement of underperforming stocks, which has historically provided for positive risk-adjusted returns versus benchmarks.
|IPOX (Initial Public Offering Index)|