almost 3 years ago • 3 mins
Deliveroo’s hotly anticipated stock market debut turned up cold on Wednesday as the food delivery firm’s newly public share price ended its first day down 13% – and left its retail investors most at risk of a one-star experience.
What does this mean?
As foreseen in the Finimize app’s exclusive analysis last week, Deliveroo announced shortly before its initial public offering (IPO) that shares would begin trading at the lower end of expectations. Since recent listings have generally launched at the top of their advertised price ranges, that already suggested there was limited investor appetite for yet another food delivery stock.
Deliveroo nevertheless managed to raise $2 billion as planned, starting Wednesday worth $10.5 billion. But its valuation immediately fell 30% as the stock market opened for “conditional dealing” of the company’s shares. Deliveroo’s shares recovered some ground by the end of the day – but not before trading was briefly suspended in the wake of wild price swings.
Why should I care?
For markets: Investors are backpedaling.
Several high-profile investors have highlighted big risks involved in backing the primarily bicycle-based food delivery company. In the wake of Uber’s enforced reclassification of its UK drivers as “workers”, rather than cheaper contractors, Deliveroo may soon face similarly elevated costs. What’s more, with lockdown restrictions easing and people returning to restaurants, the company’s growth is set to slow. And a chronic lack of profit – another big deliverisk – means Deliveroo may be poorly placed to adapt to potential changes in its regulatory and market environments.
For you personally: Retail investors could get burned.
Spare a thought for those small-time individual investors who were, for once, able to buy directly into Deliveroo’s IPO – but who can’t actually trade their shares until next week. If they respond to Wednesday’s losses by rushing to sell at the earliest opportunity, retail investors could serve up more trouble for Deliveroo’s share price.
Keep reading for our next story...
A new study this week revealed only half of Europe’s professional stock pickers beat their benchmarks in 2020 – lending further weight to the idea that such “active” investment strategies simply aren’t worth it.
What does this mean?
Much ink (and probably even a bit of blood) has been spilled over which approach delivers better returns: picking individual investments or “passively” backing entire markets. Most research lands with the latter – but active advocates claim that when volatility spikes, professional stock (and bond) pickers prove their worth by better navigating big swings up and down.
Those hopes may now have been dashed, however. Amid last year’s pandemic panic and the subsequent "everything rally", just 50% of European active investment funds outperformed a passive equivalent. That’s admittedly higher than the ten-year average success rate of under 25% – but it’s hardly a resounding victory. Things weren’t any better across the Atlantic, either: only 49% of active American funds outperformed their passive peers last year, according to a report out earlier last month.
Why should I care?
For markets: Hot pockets persist.
Active investment strategies tend to work better in some areas than others. In the US, long-term success rates are highest for active funds investing in bonds, real estate, and international stocks – and lowest among funds that invest in the biggest US stocks. That stands to reason: America’s largest companies are so closely watched by so many investors that it’s much more difficult to find potentially undervalued gems.
The bigger picture: Get the best of both worlds.
Active and passive philosophies aren’t mutually exclusive: after all, investors still have to make decisions about which passive funds to pick and in what proportion. You can also further combine the two strategies through a “core-satellite” approach, benefiting from both the solid diversification of passive investments and the enhanced potential of smaller freewheeling trading ideas.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.