IPOs coming back to earth

The average return of U.S. initial public offerings in the third quarter fell 12.1% following their first day of trading. Those declines followed an average first-day return of 15.2% with about 62% of all third-quarter IPOs trading above the issue price on Sept. 30, according to data from Renaissance Capital.

The third quarter's disparity between the first day of trading and the subsequent trading days followed a three-month period in which new offerings hit the ground fast and, overall, were able to maintain a glimmer of that momentum. The second quarter also produced $25.1 billion in new equity on 62 offerings — the most in three years, with about two-thirds of those stocks trading above offering by June 30.

A longer look shows that new issues have failed to beat public equities over the past 15 months. The first quarter of this year was the only period noted by Renaissance when its IPO index outperformed the Russell 3000 by 17.5%. Over the total period, however, public equities have beat IPOs by more than 10% with one-third less the volatility.

It should be noted that the IPO index suggests that investors bet on every IPO that comes to market in the U.S., and they can with Renaissance's ETF tied to the index, but, overall, these offerings are viewed on an individual basis by most. The Renaissance IPO index is composed of 80% of the largest new public companies based on market cap with a 10% cap placed on all constituents and are removed after two years.