A frenzy of unicorn tech companies hit the public market this year, attracting investors willing to bet big on the industry. While some of the most popular IPOs of 2019, like ride hailing competitors Uber Technologies Inc. (UBER) and Lyft Inc. (LYFT), remain far from their highs, other newly public companies such as CrowdStrike Holdings Inc. (CRWD) and Beyond Meat Inc. (BYND) have soared past their initial IPO prices.
According to a recent Goldman report, large-cap core, growth and value U.S. mutual funds – 36% of which have outperformed their 10-year benchmark averages year-to-date (YTD) – own major stakes in the high profile tech IPOs of this year, such as Uber, Lyft, Pinterest Inc. (PINS), CrowdStrike, and Zoom Video Communications Inc. (ZM). Per the report, which analyzed positioning of 597 equity mutual funds with $2.6 trillion in assets under management, Uber and Lyft are the most overweight 2019 US IPOs and have the largest number of mutual fund holders.
The top 10 2019 IPOs owned by mutual funds also include health care companies like Avantor Inc. (AVTR), Shockwave Medical Inc. (SWAV), and Turning Point Therapeutics, as well as consumer discretionary companies Chewy Inc. (CHWY) and Levi Strauss & Co. (LEVI).
Out of the group, Chewy Inc., the largest “pure-play pet e-tailer,” may look the most peculiar. However, investors are betting big on the continued “humanization” of pets, leading to demand for a variety of products and services including higher quality foods. The independent subsidiary of PetSmart has seen its shares jump 35% from their initial IPO price at $22 per share in June.
Turning Point Therapeutics, a clinical-stage precision oncology company, is among 2019’s biggest winners. Since making its public debut in April, the company aiming to develop cancer drugs for patients that have developed resistance to other treatments, has seen its shares nearly triple from an IPO price of $18.
Mutual Funds Trim Tech
In the second quarter, funds trimmed their average exposure to Information Technology, which includes many popular software stocks. Allocations to Info Tech is at the 10th percentile relative to the past seven years (-38 bp). Mutual funds rotated towards Communications Services, favoring Media and Entertainment stocks, and are underweight defensives and tech, this year’s best performing sectors. The outperformance of mutual funds was partially aided by their relatively smaller exposure to the U.S.-China trade war than their benchmarks. For example, mutual funds are underweight semiconductors, and most are overweight Financials (+85 bp), and have upped exposure to the sector by 35 bp YTD.