We’re Shattering Myths on European Growth

Source: IPOX Schuster, LLC1Aftermarket performance of an equally-weighted sample of new listings globally (31/12/85 –31/12/18). Underlying universe includes IPOs, spin-offs and respective M&A.2The returns shown for the 25th Percentile and 75th Percentile are the threshold for that percentile. All returns in the 25th Percentile are less than or equal to the return shown for that period in the table above. Similarly, all returns in the 75th Percentile are greater than or equal to the return shown for that period. For illustrative purposes and not indicative of the funds. Past performance is no guarantee of future results.

Since 2007, over 1700 European companies across market caps, styles and sectors have gone public on the accessible exchanges. Notice we’re not concerned with where a company is listed, but where it originates.




And here’s our second myth to shatter: when it comes to sectors, IPOs aren’t just about technology and healthcare. Among European companies listed in 2020, only 20% have been in healthcare, and 20% in technology (see chart below). The rest have been well-dispersed across sectors.




Finally, dispelling a third myth. IPOs are commonly considered to be volatile investments; in practice, IPO investors don’t suffer a volatility penalty, and in fact have exhibited BOTH a lower standard deviation AND lower downside capture than the MSCI Europe Index.

Source: IPOX Schuster LLC .Data as of 31/05/2021.Data prior to launch date is backtested data.Past performance is not a guarantee of future results.

European IPOs to potentially benefit from a sustainability boost

While climate-change and ESG products have been getting most of the attention regarding sustainability, European IPOs offers investors a potential backdoor into innovative and alternative sustainability players.

Companies with a sustainable angle are very much in demand, and therefore tend to enjoy a performance boost, both in their respective markets as well as on a stock basis. Yet for European companies looking to IPO, ESG is part and parcel of doing business. EU regulations have been forceful about sustainability, as have been longstanding cultural attitudes.

Take Oatly, the Swedish oat-based milk company. Its IPO followed the playbook[1], with shares surging 18% on Day.

And it enjoys sustainable tailwinds: the rise in plant-based milks. In 2020, Oatly’s revenue more than doubled, and the company had been exceptionally well-placed to endure covid closures, with food service accounting for a quarter of sales, and retailers accounted for the rest. On top – and as typical of innovative companies creating a new segment - Oatly has been rapidly expanding its product range and now with an additional $1.4Billion in its bank account!

Spin-offs are a special beast

For corporate spin-offs, the risk profile tends to be even lower than with IPOs, since the newly-listed entity already enjoyed a track record within its parent company. There’s also an element of inside information, as companies list to unlock value to their shareholders.

This was the case, most recently, with Vodaphone, which spun off Vantage Towers[2]. The heavily oversubscribed listing was Germany’s largest stock market debut since 2018.

Investor appetite for infrastructure assets has been growing ahead of the rollout of 5G technology[3], and Vodaphone was eager to capitalize on the sentiment. However, the company was signalling the type of insider-insight on which spin-off investors thrive:

While selling its assets outright would have brought in piles of cash, instead Vodaphone chose to retain ownership of 81% of the new entity, because it believes in its future growth[4].

Okay, but why thematic investing?

Allocations to European equities vary widely according to investor base, and outside Europe, it can be a relatively small percentage. Thus, it’s hardly surprising most portfolio managers choose to play it safe and focus most of the allocation on sturdy European heavyweights, and these rarely deliver stellar performance.

Thematic investing lets investors diversify their portfolio and potentially gain exposure to trends that’re hard to replicate through stock picking. With a single transaction clients access a group of companies tied together by a theme, rather than their country of domicile, sector classification or exchange listing.

And with many investors clinging to false myths, European IPOs and spin-offs represent a highly attractive theme, backed by a wealth of data and a strong track record, providing an exposure to Growth in Europe!

[1] Oatly shares soar 18% in company’s public market debut on Nasdaq

[2] Vodafone's Vantage Towers climbs after Germany's biggest IPO since 2018, Reuters

[3] The road to 5G: The inevitable growth of infrastructure cost

[4] Vantage hopes to take advantage of tower dealmaking boom

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