We were surprised to see the YTD returns in small cap land…thought it had been more difficult!
- Small cap returns depend on style - Value index up 24.5%, Growth index up 7%, Core up 15%
- In early Feb ’21, growth and value styles were up mid-teens YTD, Growth up 17% vs. Value 15%
- Divergence since then a function of reopening hopes – Value peaked up 32% in early June!
- Growth bottomed early May, down 2%, has not returned to YTD double digit returns
- Core small cap (IWM) had outperformed SPX 500 on YTD basis by 1400 bps in early March
- Core now trailing SPX 500 by 500 bps, despite 15% return – big performance turnaround!
- Small caps began to outperform large with vaccine news in Nov ’20…delta variant is a factor in underperformance!
IPO market hitting records in terms of volume and proceeds – SPAC’s are slowing…
- 99 traditional IPO’s (non-SPAC) had highest quarterly activity in over 20 years (3Q2000)
- $41 billion of proceeds from traditional IPO’s the most in two decades (4Q99)
- Healthcare busiest sector (46), followed by technology (42)…then consumer (9)
- SPAC IPO’s raised $12 bln during 2Q21 vs. $87 bln in 1Q21…this compares to $2 - $3 mln/qtr in 2017 – 2019
- IPO pipeline remains robust with 105 companies having filed looking for ~ $12 bln in proceeds
- Interesting that 2Q14 saw largest quarterly issuance during 2010 decade (83) - IWM peaked in early July ’14 and bottomed in early October, down 12%...
China regulatory crackdown on technology companies impacting local and EM equities
- China makes up ~ 1/3 of the EM index, Chinese stocks down 11% YTD in dollar terms
- There has been a correlated impact on other Asian markets, only Taiwan positive YTD
- This may not be a short-term phenomenon - Chinese govt taking long view on anti-competitive practices and data privacy
- How much of Chinese govt actions to hurt US investors? Certainly not lost on them…
- Unintended consequences are likely in terms of business and capital formation
- Historically Chinese tech startups have relied on foreign seed capital
- Hong Kong IPO’s on track for slowest quarter since 2009
- Global investors will demand a return premium for future investments in China