Should you invest in an IPO? Lessons from the Deliveroo stock market launch
Should you invest in companies through IPOs? Deliveroo’s recent stock market flop is a perfect example why it may be best to steer clear.
The market for Initial Public Offerings (IPOs) has been strong in recent times, with particularly well-known company names entering the fray. But is it worth ‘getting in at the ground floor’ of a company’s stock market listing?
As the most recent high-profile example, Deliveroo’s IPO can be a valuable lesson for investors. Its IPO took place on 31 March and quickly went down as one of the ‘worst’ IPOs in stock market history – with the share price losing over 30% from its initial starting point of £3.90 per share.
Deliveroo’s stock market launch got off to a shaky start with a price that many investors seemed unwilling to pay. This is why the price kept lowering before it even launched on the market – not a good sign.
It also came under pressure from a chorus of fund managers who declared their unwillingness to participate in the IPO – citing concerns about how it treats its workers, the fact it’s unprofitable and questioning the sustainability of its business model.
The saga has quickly become the posterchild of failed IPOs in recent times – but is far from the only example of a failed share offering launch. Other firms such as Uber – a competitor to Deliveroo in the food delivery space – have had spectacular failed launches too.
This is not to say all IPOs are failures – far from it. Recent listings such as The Hut Group have been relatively successful. Another interesting example is that of home workout equipment firm Peloton – which on its stock market debut saw its price crumble quickly.
The firm has however performed admirably since, thanks in particular to the coronavirus crisis which has led to demand from homeworkers desperate to exercise in their living rooms.
This is the essential quandary for any long-term investor considering participating in an IPO – doing so is something of a gamble. If you’re convinced of the investment case for the company then you should be willing to back it over a long-term horizon.
In the short term the price could fall significantly and lose the investor a lot of money though. Those investors without the stomach for short-term falls will sell and crystalise their losses. For every Peloton or Hut Group there are also plenty of Deliveroos or Ubers.
A such there are a few lessons from the Deliveroo IPO and others that investors should heed:
- Which IPO is right for you? Some company listings such as Deliveroo’s receive large amounts of media attention – but that doesn’t mean they are the best ones to go for.
- Are there clear signals that the IPO might have issues? Deliveroo’s IPO for instance received widespread negative attention before it even listed, with the price lowering repeatedly – a bad sign from the get-go.
- Read the detail. Companies looking to list have to offer investors a prospectus. As was the case with WeWork IPOs can unravel quickly when this document is proven to be written on shaky ground.
- Take a critical view. Deliveroo was given significant criticism of its work practices which led to fund managers declaring themselves uninterested. If someone else is trying to spin a different picture, ask why that might be.
- Wait and see. Investing right at the outset might seem exciting, but waiting for the market to make its value judgement of the share price might leave you with a cheaper entry point to ownership
If you don’t have the time to dedicate to research on a company IPO, you may want to stick to investing through a mix of funds and other diversified asset classes. Investing this way outsources the work of assessing the best investment options for a generally small fee.
Even if you own a fund that has invested in Deliveroo this will be done as one part of a larger range of company stocks that ensure you’re not overly exposed in one place. Investing for most people should focus on long-term diversified growth using a range of products that ensure successful wealth growth – with no gambles whatsoever.
If you’d like to discuss your investments or have any questions from subjects raised in this article don’t hesitate to get in touch with your financial adviser.
Is the UK the best place to put your money over the next decade?
With the economy rebounding and the vaccine roll-out gathering pace, experts are tipping the UK as an increasingly attractive place for investors to put their cash.
The UK has been unloved by investors ever since the Brexit referendum in 2016. But sentiment towards UK shares is changing as the economy begins to emerge from the pandemic. US fund manager GMO believes the UK will be the best developed world destination for investors in the next seven years, with British ‘value’ stocks of particular interest. Value stocks are companies that trade at share price levels noticeably below their fundamental factors such as dividend levels, earnings or sales.
Why? Firstly, GMO believes UK shares are undervalued. And secondly, it believes shares in other developed markets are overvalued to the point where investors may no longer be willing to pay the premium attached to them.
The S&P 500, for instance, reached an all-time high over 4,000 points on Thursday, 1 April. The UK’s investment case has also been bolstered by the fact its economy is bouncing back strongly from the pandemic.
An International Monetary Fund report on future economic growth release on 6 April said the UK was set to outstrip all other developed economies in 2022 – growing by 5.3% this year and 5.1% next year, higher than the US and EU. This would be the strongest annual GDP growth for the UK since 1988. The IMF says this predicted bumper bounce back from the coronavirus crisis is largely down to the Government’s spending blitz to support the economy and prevent long-term scarring. But there are other factors that make the UK an attractive destination for investors too. For example, one of the big drags on the UK’s collective share prices has been Brexit for the past half decade.
It would appear the country is putting this issue firmly behind itself as it has agreed a long-term deal with the EU at the end of 2020 and has already put pen to paper on other trade deals around the world. In the wake of Brexit’s finalisation, the UK is also trying to position itself as a future leader for tech company listings and attracting other new business to its valuable financial hubs. The Chancellor Rishi Sunak is looking at reforms to listing rules to make it easier for fast growing companies to float on the London Stock Exchange. The net effect of this, if successful, is that the UK could play host to some of the most attractive growing companies to invest in in the future.
There are however counter arguments to GMO’s position on UK markets. The FTSE 100 and 250 have performed admirably when considered over 12 months, but still sits relatively low compared to historic averages - it may be that the value drag caused by Brexit has become permanent.
It would require a significant bull run – and for the shine to come off other major nations’ markets -for it to outperform in growth terms. It is also an argument that GMO are not the first to make – for some time UK-focused fund managers have pronounced it to be the most-undervalued market in the world. The upswing has yet to materialise.
The make-up of the index is also an issue. It is not geared toward ‘growth’ in quite the same way, with many firms stronger in terms of dividend income rather than exponential growth. This is partly why Rishi Sunak wants to change the constituents of the FTSE with more tech, but how easy it would be to unseat the incumbents is unclear.
Of course, nothing is certain. While the aforementioned factors all play into a positive outlook for the UK, there are always going to be bumps along the road.
If you’d like to discuss your investment options in the UK or anywhere else more, don’t hesitate to get in touch with your adviser.
Tax Day 2021: inheritance tax changes and tax-as-you-go self-employment on the cards
Tax Day 2021 was hyped up for big changes to the tax system, but instead households were given small tweaks.
Households were braced for a series of tax hikes on so-called ‘Tax Day’ earlier this month – but their finances were left largely untouched. After Chancellor Rishi Sunak’s Budget on 3 March led with a raft of allowance changes, the rumour mill began churning once again as the Treasury announced its intention to publish tax-related measures on 23 March.
What was announced?
The most concrete announcement from the Treasury related to the reporting of estates for inheritance tax (IHT). Currently all estates have to file paperwork to HMRC whether or not they fall above or below the thresholds for paying IHT. The Treasury has scrapped this requirement for estates that sit below the £325,000 threshold to pay. The Treasury says as a result 90% of estates will no longer have to fill out IHT forms but in practice this is a little unclear as it hasn’t explicitly said what the requirement will be to fill one out. With plans to be implemented by 1 January 2022, households will have to wait and see for more detail.
The taxation of trusts was also raised in the update. The Government has been looking at how trusts work for tax purposes with a view to potentially cracking down on some of the methods used to avoid paying more tax from estates. It has however decided to back away from making any changes thanks to what it sees as a lack of ‘desire for comprehensive reform’. While less often used as a means to avoid tax these days, trusts do have some IHT advantages. Individuals can set up trusts worth up to £325,000 every seven years as a means to avoid paying any IHT on that amount of their overall estate without incurring a 20% charge.
Elsewhere, inquiries into changing the way self-employed people pay tax and a closer look at tax avoidance schemes have been announced. While neither of these offer concrete policies, both indicate a direction of travel in government when it comes to obtaining people’s tax in future.
If you would like to discuss any of the themes in this article don’t hesitate to get in touch with your adviser.
How to spot and protect yourself from investment scams
Financial scams are at record highs. Here’s how to know the signs and protect yourself from a scammer.
The number of investors duped by fraudsters into handing over money for fictional investments skyrocketed by nearly a third (32%) last year, new figures reveal. In a bombshell report on financial fraud in the UK, trade body UK Finance reveals nearly 9,000 victims lost more than £135 million to investment scams last year. Not only are investment scams an increasing problem, but also, they can be devastating for the victims. According to Action Fraud, the UK’s fraud reporting service, victims of investment fraud lose more than £45,000 each on average.
Below we set out what investment scams are and how you can avoid falling for them.
What is an investment scam?
An investment scam is where a fraudster tricks a victim into transferring them money to pay for an investment opportunity that doesn’t exist. Typically, scammers try to persuade you to invest in property, fine wine, crypto currencies or any other asset, usually with the promise of sky-high returns. Once the victim makes a transfer, the scammers run off with the cash and the victim never hears from them again.
How do they trick people out of their money?
Fraudsters use incredibly sophisticated and elaborate methods in order to trick investors out of their cash. To seem legitimate, scammers often steal the identities of genuine, reputable companies, which is known as ‘cloning’. That way, victims think they are dealing with the genuine firm. Criminals tend to target their victims by cold calling and using high-pressure sales tactics to persuade them to part with their cash. Crooks also use a technique called ‘spoofing’ during phone calls which makes the number they are dialing from seem genuine - as if it were from your bank - when it isn’t. It’s also not unusual to see scammers use social media, email or even letters to hook their victims. In most cases, the crooks will try to force the victim into action by claiming there is only a small window to invest before the opportunity disappears.
How to avoid becoming a victim
- Reject unsolicited approaches
The most effective way to guard yourself against investment scams is to avoid all unsolicited calls and emails encouraging you to invest your money. Put simply, if you get a call out of the blue, hang up; and if someone emails you, delete it and don’t click on any of the links.
- Do some digging
If you are approached by a firm you are familiar with – say, your ISA or pension provider – check it is really them before parting with your cash. For example, you can call their customer service line to find out if the offer is legitimate. However, if you are emailed an offer, don’t call the number in that email – it might be fake. Search for the number instead on the company’s website.
- Use ScamSmart
If you think an investment or pension opportunity could be a scam, use the Financial Conduct Authority’s ScamSmart test. After just a few short questions, the test will tell you whether or not you’re at risk of being defrauded.
- Report it
If you think you’ve spotted a scam, report it so others don’t fall for it. You can do that by calling Action Fraud on 0300 123 2040 or by using its online reporting tool.
The World In A Week - Roaring Twenties 2.0
Last week saw Boris Johnson confirm that England would proceed to the second phase of the lifting of lockdown restrictions on 12th April, as non-essential shops, beer gardens, hairdressers and gyms would be allowed to re-open their doors. There is a general expectation that consumer spending will pick up sharply as British people have been starved of access to shops, leisure activities and pubs. According to the Office for Budget Responsibility, estimates suggest that an extra £180bn of savings will have been generated during the lockdown by June 2021. There have been significant worries that inflation will begin to pick up as consumer spending frantically increases and this could be the start of a remarkable period of consumption, which could resemble something similar to the “Roaring Twenties” frenzy. This period, starting in the 1920’s, saw accelerated consumer demand in leisure and cultural activities following years of hardship and loss from World War 1.
We are in a similar situation today, having faced travel restrictions and adhering to social distancing protocols to suppress the spread of the COVID-19 virus. There are clearly some distinct similarities between the “Roaring Twenties” and current day circumstances with significant pent-up demand expected in the travel and leisure industries. Tourism and luxury fashion are two industries that are expected to thrive as lockdowns begin to ease and vaccine rollout increases.
Looking ahead to the rest of the week, today is the start of the US corporate earnings season with the S&P 500 hitting fresh highs on Friday as markets prepare for the release of company Q1 financial results. The S&P 500 closed +3.4% last week, outperforming the global equity benchmark MSCI World Index which was up +3.1%.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of Monday, 12th April 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Knitting Pattern
Data is confirming the pattern of the economic bounce back. As restrictions are eased, spending on services are increasing. Restaurants, leisure, and hospitality are the main beneficiaries, as consumers look to make up for lost time. This can be seen in the US payroll data that was published on Good Friday, where 916,000 jobs were added in March. The sector with the largest increase was leisure and hospitality. This is exactly what we would expect as the lockdown restrictions are lifted.
This joy is being delayed in Europe though, as the number of COVID-19 cases continue to rise, and additional restrictions are implemented. France announced a four-week lockdown and Italy is extending their current restrictions to the end of April. German Chancellor Merkel has also warned that further restrictions may be required in Germany. A sombre week when compared to the UK, where we enjoyed an Easter weekend with lesser restrictions.
However, the consequence of these lockdowns in Europe may mean a delay to easing restrictions for the UK population to holiday abroad. While this will be disappointing to many of us, it arguably matters more for Europe. Tourism is a significant part of the European economy, and while certain elements of demand are only delayed because of lengthened restrictions, holidays are time sensitive, and the summer could be lost if control is not established quickly.
While data is looking positive, policymakers are yet to take their foot off the gas. President Biden unveiled his once-in-a-generation infrastructure investment plan for the US, which will see almost $2 trillion pledged to rebuild roads, highways, and bridges. This is not a patch though, as the proposal, called the ‘American Jobs Plan’, is being used to confront climate crisis, curtail wealth inequality, and strengthen competitiveness.
The proposal will take eight years and generate millions of jobs, with an increase in corporate taxes over the next 15 years to help offset the cost. In reality, much of the tax increase is simply unwinding the tax cuts that President Trump introduced during his term in office. One thing is for sure, this will take considerable time to be signed off by Congress as everyone looks to amend the plan to benefit their own constituencies.
As we start the second quarter of 2021, there are a lot of factors to be weaved together before we can finally reach the light at the end of the tunnel, but the progress is encouraging.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 6th April 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Stuck In The Suez
According to urban myths, it is said that when you are in London you are never more than 6ft away from a rat, and it appears that within emerging markets you are never more than two steps away from a crisis, as this week has proven with two events having hit the headlines. Firstly, in Turkey, President Erdogan, out of the blue, replaced the central bank Governor. Markets did not react kindly, with the Lira plummeting and yields on Turkish debt widening. Thankfully, this is an idiosyncratic event and there appears little risk of contagion. On a positive note, if the currency remains at its current levels, it will mean beach holidays to Turkey will be 10% cheaper, when such activities are permissible. In the context of the portfolios, this was a nonevent, but clearly more of an immediate consideration for those institutions with exposure to the region. The emerging markets both from a debt and equity perspective throw off challenges, but at the same time create many mispriced opportunities.
The second event is more comical in nature, but is far more impactful, which is a shipping container that since Tuesday has been blocking the Suez Canal, the world’s busiest shipping lane, causing huge delays and expensive detours. Lots of memes are spreading like wildfire across the Internet, the pick of the bunch is the caption - we all make mistakes, but at least they’re usually not “we can see your mistake from space” bad. With a satellite image showing the incident in all its glory, oh dear!
On the pandemic front we are definitely seeing two speeds taking place. In the US the vaccine rollout progresses at a great pace. However, the same cannot be said in Europe, where the infection rate has been picking up in France, Germany, and Spain. In the UK we are stepping ever closer to the easing of lockdown, but in Europe this looks to be pushed further out. One improvement this week has been the easing of tensions between the UK and Europe, de-escalating the dispute over vaccine export curbs. “Reciprocally beneficial relationship” to tackle COVID-19 was issued by both parties. Hopefully, the European authorities can focus on the job in hand of getting vaccines rolled out and progressing on the return to normal.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 29th March 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Knowing the Price of Everything, but the Value of Nothing…
The last week in markets was quite typical of the environment we have observed for the year to date. There was not an awful lot of movement at the headline level, but quite a lot of volatility and dispersion of returns below the surface, which made precise positioning critical. Headline global equities, as measured by the MSCI All Country World Index (ACWI), were down -0.3% in GBP terms, while most forms of Fixed Income sold off as interest rates continue to rise in the US as market participants price in a robust economic recovery.
What we found to be particularly of note last week was the continued outperformance of “Value” equities, in excess of their “Growth” counterparts. As we approach the end of the first quarter of 2021, it is interesting to note how different this market has been versus what we observed in 2020. For the year to date, MSCI ACWI Value is up +7.0% in GBP terms vs a return of -1.7% for MSCI ACWI Growth.
On a stock level, names which exploded upwards in a pique of exuberance in 2020 have struggled this year with Tesla down -5.7%. ETFs such as the wildly popular ARK Innovation ETF are down -2.6%, while in the UK popular Funds such as the Baillie Gifford Global Discovery Fund are down -3.6%. This contrasts with a YTD market return (MSCI ACWI in GBP) of +2.7% and a return of +13.7% for our Value managers (Pzena Global Value in this instance).
What is really fascinating is the fact that Volkswagen shares have returned +78.5% for the year to date, driven by their increasing dominance in the electric car market. This return contrasts with Tesla’s negative performance year to date and is emblematic of the fact that VW is now outselling Mr Musk in electric vehicles in Europe. Volkswagen is valued at 7x the earnings it is expected to generate over the next 12 months, vs Tesla on 146x. This is really interesting because it illustrates that investors do not have to follow the herd and pay stonking prices to gain access to interesting investment themes such as the electric vehicle revolution. Kawasaki Heavy Industries is another interesting name held by our Nikko Japan Value Fund, which is in a prime position to take advantage of the opportunity presented by the advent of hydrogen energy but is valued on a price-to-book ratio of less than 1.
On the Fixed Income side, it has been interesting to see our Chinese Government Bond Fund (UBS China Bond) perform positively year to date, as bonds have sold off globally as interest rates rise. UBS is up +0.2% vs -2.7% for the Barclays Global Aggregate Index. Once again this demonstrates the importance of nuanced Active positioning in the current environment.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 22nd March 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Fiscal Injection
Last week saw President Joseph Biden’s $1.9 trillion stimulus package passed by Congress, which has seen the Organisation for Economic Co-operation and Development (OECD) accelerate its global growth expectations to 5.6%. The OECD has also increased its US growth forecast from 3.3% to 6.5%. Americans will expect to see $1,400 paid directly into their bank accounts which should effectively increase consumer spending, keep businesses operational and boost economic activity. Most of the package ($750 billion) will support the continuation of the US vaccination rollout, with $600 billion set aside in the form of said stimulus checks. A further $400 billion will aid financially vulnerable households in the form of unemployment benefits of up to $400 a week and the final $150 billion is set to support smaller businesses with loans and grants. US markets welcomed confirmation of President Biden’s stimulus package with the S&P 500 returning +2.09% in GBP terms last week.
The UK’s gross domestic product is estimated to have fallen by 2.9% in January 2021, with the national lockdown reducing the levels of consumer spending and economic activity considerably. Elsewhere, the Governor of the Bank of England, Andrew Bailey stated that he is confident that inflation would not threaten price stability as consumer spending is expected to pick up significantly as we transition out of the national lockdown. The UK inflation rate rose 0.9% in the 12 months to January 2021, well below the Bank of England’s 2% target rate. Inflation is often measured by the Consumer Price Index (CPI) which measures the price change of a typical basket of consumer goods. This basket of goods has been rightly adjusted to reflect the recent shift in consumer spending habits which has included increased demand for hand-sanitisers and home exercise equipment.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th March 2021.
© 2021 Beaufort Investment. All rights reserved.
NS&I Green Savings Bonds: what are they and will they offer a good return?
The Chancellor’s Spring Budget unveiled a new savings scheme from the Government’s National Savings & Investments (NS&I) arm, focusing on ‘green bonds’.
Green bonds are a new form of investment issued by governments and companies which aim to use the proceeds to improve the environment. This can manifest in a broad range of ways – from investing in clean energy facilities to helping carbon-intensive companies reduce the levels of pollution they create. As with government bonds, if you invest in these you agree to effectively lend the government money for a set period of time, in exchange for an interest payment. At the time of writing, detail is still fairly scant on what kinds of green bonds will be available, how much they would pay in interest, or how long you might have to stow your money away for. But there were hints in the detail of the Treasury’s announcements that suggest these bonds may be more competitive than current dismal rates.
Dire savings market
The savings market has been in decline, in terms of rates on offer, for years. But this dire situation has been accelerated by the coronavirus crisis, seeing many savings accounts now paying as little as 0.1% interest. NS&I’s products are no different. In the second half of 2020 the Government-backed savings provider slashed its own rates to all-time lows. This was ostensibly done to discourage households to hoard their cash and encourage spending to help the economy and is not a new concept during crises.
Sovereign green bonds
The new green bonds are being introduced here, and by other governments, to support what is being called the ‘green recovery’ and includes the recent announcement of green sovereign bonds, also confirmed in the Budget. These bonds will be sold to investors as ethical, environmentally focused investments. But the Government, not content with offering such assets to professional investors, also wants consumers to have an option to put their savings towards meaningful green initiatives. The consumer-focused NS&I bonds will be 100% government guaranteed, but there is little detail as to whether they will offer a meaningfully better rate than normal non-green NS&I accounts. The Treasury has said, however, that these deposits will sit outside the normal remit of NS&I deposits, which could imply a different set of goals in terms of how much it tries to attract.
Alternatives
Speculation is rife over what rates will be offered. That being said, it is highly unlikely the bonds will pay significantly more than the current NS&I savings products, especially when the Government is providing 100% guarantees and the rest of the savings market is so poor.
There is no concrete timeline for these accounts to launch either, with NS&I sticking to a “coming soon” position for now. In the meantime, if you’re keen to invest your savings with the planet’s greater good in mind, there are a range of alternative ways to do so.
Please get in touch with your financial adviser to discuss the options for ethical investing.