Initial public offering (IPO) stocks that listed during the post-COVID rally in tech stocks in late 2020 was the first time in two decades that new floats outperformed the broader market, according to new research.
In a report published on Tuesday, analysts at stock market index provider MSCI Inc said that for most years between May 1999 and December 2020, IPO stocks tended to perform in line with its underlying MSCI World Index, which includes 1,563 constituents across 23 developed market countries.
However, the analysts highlighted that IPO stocks during the post-COVID-crisis rally of tech stocks in 2020 had “outperformed the broader market” for the first time during the coverage period.
The only other exception to the in-line performance was during the bursting of the dot-com tech bubble between 2000-2002 when MSCI said IPO stocks had “underperformed the index”.
The report also said that over the last five years, the data had shown an “attractive performance of recent IPO additions”, driven primarily by information-technology sector stocks and from specific listings such as Australian ‘buy now pay later’ firm Afterpay Ltd and Nasdaq-listed digital ad software group The Trade Desk Inc, both of which listed in 2016.
With this data in mind, MSCI concluded that there were “benefits to including IPOs in [stock market] indexes sooner”, adding that including newly floated shares in a timely fashion is “important” in achieving the goal of representing a “full equity opportunity set”.
“Additionally, many IPO stocks represent important emerging themes and/or disruptive technologies, and we believe their inclusion into indexes is important”, the analysts added.