The IPOX Week (5/21/12): Upon Debut, Facebook (FB) Trails General Motors (GM)

May 29, 2012 3:11 PM ET
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Contributor Since 2008

Josef Schuster is the founder of IPOX Schuster LLC and IPOX Capital Management LLC, a Chicago-based Financial Services specializing in Financial Products Design related to global IPOs and spin-offs (www.ipoxschuster.com). Our philosophy - developed over many years of academic research in the FMG at the London School of Economics - involves the classification of global IPOs as a separate asset class. Our main product are the IPOX Indexes, patented long-only and long-short investment vehicles which are designed to capture the asset allocation potential of global IPOs. With over USD 3bn tied since 2005, the indexes have become an alternative benchmark for global growth investing. IPOX Capital Management LLC is a SEC-registered investment advisor.

SUMMARY:

Stocks plunged as China-linked markets slumped anew, Europe deteriorated, yields fell and the dollar strengthened. Amid rising global risk and a crash in social networking exposure, Facebook's IPO debut left a "bad taste in initial investor's mouths". Key IPOX stocks added by big investors.

HIGHLIGHTS:

IPOX Global drops, match or beat the slumping benchmarks, key IPOX stocks added by big investors: The IPOX Global 50 (IPGL50), key gauge to measure the performance of the largest and most liquid global IPO's, recorded the biggest drop YTD, declining -5.32% to +6.10% YTD. While IPOX Global is still solidly positive YTD, benchmark MSCI World (MXWD), measure for global stock, fell -5.34% to -0.45% YTD. As investors fled risk, negative performance extended across all global regions: In the United States, the IPOX U.S. Strategies followed the U.S. benchmarks lower. E.g., the IPOX U.S. 100 (ETF: FPX) fell -5.00% to +7.68% YTD, slightly underperforming the S&P 500 (SPX). With the Russell 2000 (RUT: -5.42%) declining, the large-cap centric IPOX U.S. 30 (IPXT) beat FPX for another week. We note the addition of two key IPOX holdings by big investors with a) Warren Buffet's Berkshire Holding adding the 4th key IPOX holding to its portfolio (GM: -3.73%) and b) S&P announcing the addition of Kinder Morgan (KMI: -4.38%) to the S&P 500 (SPX). In other global regions, the IPOX Europe universe (IXTE, IPXUJPEU) was pressured by massive losses in Spanish Financials including Bankia (BKIA SM: -15.17%) which went public in 2011 and sold mostly to Spanish retail investors. New equity exposure as measured by IPOX in developed Asia-Pacific fared better with the IPOX Asia-Pacific (IPTA) beating benchmarks MSCI Asia-Pacific (MXPC) by +22 bps. and remaining +1157 ahead YTD. While the Macau-domiciled casinos including Wynn Macau (1128 HK: -9.08%), Sands China (1928 HK: -7.96%) and SJM (880 HK: -10.48%) suffered from high-beta, 2012 H.K. spin-off Swire Properties (1972: HK: +1.39%) rose against the trend. IPOX heavyweight and Japanese Financial 2010 IPO Dai-Ichi Life (8750 JP: -5.63%) fell towards its post-IPO low.

Key IPOX Strategies Comparable Returns YTD 2012:

Ticker (BBG/Reuters) Return

5-day

YTD 2012 Name
IPGL50 (USD) -5.32 6.10 IPOX Global 50
MXWD -5.34 -0.45 MSCI World
IPXO -5.00 7.68 IPOX U.S. 100
IPXT -4.70 7.92 IPOX U.S. 30
SPX -4.30 2.99 S&P 500
IPXUJPEU (EUR) -7.19 -6.51 IPOX Europe 50
SX5P (EUR) -4.77 -5.08 STOXX 50
IPTA -4.52 9.18 IPOX Asia-Pacific 30
MXPC -4.74 -2.39 MSCI Asia-Pacific
CNI -7.10 -0.90 IPOX China 20
HSCEI -5.58 -3.62 Hang Seng Enterprse

Why choose IPOX to close the IPO/spin-off asset allocation gap?
§ Proven: Real-time performance over market cycles

§ Scalable and Stable: Clearly defined Philosophy

§ Patented: Index Technology

§ Best in Practice: Support and Research

· Most significant IPOs traded (Week 05/14/12):

Company Ticker Return / IPO (%)
China City Railway 8240 HK -39,00
Facebook FB UN 0.61
Goldrooster GO8 GR 5.00
Haikui Seafood AG H8K GR 0.08

Four accessible global IPOs priced last week: Notable is the generally positive take-up of the two China-linked IPOs in Germany with fashion group Goldrooster AG (G08 GR) and Haikui Seafood AG (H8K GR) closing the week above their respective IPO price. The plunge in China City Railway (8240 HK) underlines the malaise in the H.K. IPO market where initial IPO returns have vanished, having big repercussion on the IPO subscription dynamics of the important H.K. retail community.

· Facebook (FB: +0.61%) - Risk not worked in:

a) Facebook left a "bad taste in investor's mouth", performing worse than General Motors (GM) which rose 4% on its first trading day on 11/17/10. Note that General Motors itself was able to raise its pricing range due to strong demand. At a current P/E of 5.85, GM trades -36% from its IPO price.

b) The fact that FB's initial price range was able to be raised and the size of the offering (going to selling shareholders) increased, underlines the marketing prowess of the FB deal-linked community.

c) The deal was able to be completed amid a huge increase in global risk, underlined by the 921 bps. decline in the IPOX Global 50 (IPGL50) over the past 10 trading days. With individual IPOs typically perceived to trade at the high-risk end (high beta), related IPOs plunged (e.g. ZNGA). It's not just local: JP-traded networker 2008 IPO Gree Inc. (3632 JP), valuation yardstick for pre-IPO trades amongst U.S. social networkers - fell -36.54% over the past 10 days.

d) The performance of the highly publicized big fee pre-IPO investment vehicles (GSVC: -26.50%) underlines that there are potentially negative asset allocation benefits by adding pre-IPO exposure.

As underwriter support will decline over the course of public trading, we expect the above to constitute substantial risk overhang related to Facebook (FB).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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