IPOs in Europe often fail to beat index

IPOInvesting in stocks in an initial public offering (IPO) is no guarantee of good performance, especially in Europe, where the MSCI Europe index has produced better returns than IPO stocks in the past ten years.

IPOs in Europe failed to outperform the MSCI Europe index in six out of the past ten years, according to research by Gene Salerno, head of equities at private bank Kleinwort Benson.

Salerno examined a cap-weighted aggregate of IPOs in the decade ending 2012 and found it underperformed the MSCI Europe index by an average of 3.5% in the year after their offering.

“If the company is attractive, long term investors would often do better to buy in the aftermarket when the froth has blown off the shares, and when they can be sure they can buy the size of investment they want,” says Salerno.

American IPOs were a better bet than European ones in the ten years Salerno studied. IPOs in the US outperformed the S&P 500 index in six out of the ten years, and he found the cap-weighted aggregate of American IPOs to have beaten the index by an average of 2.6% in the year after offering.

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