Tiny Australian IPOs have been doing better than the big players

Children pose with the Melbourne Cup. Scott Barbour/Getty Images for VRC

Smaller IPOs brought their investors better returns in 2016 than bigger companies listing on the ASX.

On average, IPOs returned 25.4%, or about three times more than the 7.5% rise in the ASX200 index, according to the annual report of OnMarket BookBuilds, an app which provides access to IPOs with the same terms as institutional investors.

Floats raising less than $50 million returned 32.2%, while those issuing more than $50 million managed only 14.7%.

“While the conventional wisdom may say, the larger the company, the safer the investment, companies with offer sizes of less than $50 million were the clear winners last year,” says Ben Bucknell, CEO of OnMarket BookBuilds.

“Why is it that smaller IPOs are undervalued on float? Perhaps due to the paucity of institutional funds for microcaps, companies need to under-price in order to attract retail investors. Or perhaps it is that a higher return is needed to offset the higher risk of companies seeking growth capital.”

Source: OnMarket BookBuilds

IT floats were the best performers, with an average gain of 70% by year end. Other strong performing sectors were consumer staples (up 37%) and healthcare (up 24.2%).

Some surprising non-performing floats were financials, down an average 8.1%, barely ahead of energy floats, which fell on average 10%, the report found.

Here’s how IPOs performed in 2016 compared to the previous year:

Source: OnMarket BookBuilds

And the average returns by time, depending on when you take a profit:

Source: OnMarket BookBuilds

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