Looking Past the Hype: An Investor’s Guide to IPOs
Adapted from content published by Fiducient Advisors. Used with permission.
High-profile IPOs often draw strong investor interest, especially when companies like SpaceX, OpenAI, and Anthropic lead innovation in emerging industries. This attention can create a sense of urgency, prompting many investors to consider participating early without fully understanding the broader dynamics at play.
History suggests IPOs are often underwhelming entry points for investors because of how and when public investors can invest in such opportunities. IPOs have historically underperformed the broader public market in their early years, even after adjusting for comparable size and style. This is not a short-term anomaly or a function of market cycles, but a dynamic observed across multiple market periods.
This FAQ outlines what investors should know, including why IPO performance tends to disappoint, how these companies enter the major market indexes, and why our evidence-based approach leads us to gain exposure through public markets over time rather than at the offering itself.
What Investors Should Know
When a company goes public, it sells shares to outside investors for the first time through a process called an initial public offering, or IPO. It allows the company to raise capital from a broad base of investors and marks the transition from private to publicly traded status. Once listed, shares trade on a stock exchange and are available for purchase by everyday investors.
What Does History Tell Us About IPO Investments?
Historically, IPOs have underperformed comparable publicly listed companies, a dynamic that is well documented in studies going back to the 1980s and still holds today. Recent data between 2010 and 2024 reflect the same story; in years one and two, IPOs lag benchmarks significantly, by roughly 8 to 9% in year one and 6% in year two, based on size-matched benchmark comparisons in the referenced dataset.
Percentage Returns on IPOs from 2010-2024 During the First Five Years After Issuing
| First six months | Second six months | First year | Second year | Third year | Fourth year | Fifth year | Avg of Years 1-5 | |
|---|---|---|---|---|---|---|---|---|
| Size-matched benchmark | ||||||||
| IPO firms | -1.7% | -1.5% | -0.8% | 2.9% | 11.7% | 24.3% | 7.3% | 8.7% |
| Size-matched | 5.3% | 3.5% | 8.6% | 8.8% | 17.5% | 16.2% | 11.2% | 12.4% |
| Difference | -7.0% | -5.0% | -9.4% | -5.9% | -5.8% | 8.1% | -3.9% | -3.7% |
| Size & book-to-market matched benchmark | ||||||||
| IPO firms | -1.7% | -1.5% | -0.8% | 2.9% | 11.7% | 24.3% | 7.3% | 8.7% |
| Size & BM-matched | 5.7% | -1.6% | 7.3% | 9.3% | 16.5% | 16.2% | 11.0% | 12.0% |
| Difference | -7.4% | -3.1% | -8.1% | -6.4% | -4.8% | 8.1% | -3.7% | -3.3% |
| No. of IPOs | 1,816 | 1,812 | 1,816 | 1,728 | 1,607 | 1,439 | 1,086 |
Returns are through December 31, 2025. Fifth-year returns reflect only IPOs from 2010 to 2020 (and only those that survived at least four years); fourth-year returns reflect IPOs from 2010 to 2021, and so on. Average is the geometric mean of years one through five post-IPO. Source: Ritter, Jay R. “Initial Public Offerings: Updated Statistics,” University of Florida, Warrington College of Business, updated March 12, 2026. The IPO performance data reflects broad historical averages and does not represent the performance of an investable index or strategy. Comparisons to benchmarks are provided for context only and are subject to differences in composition, liquidity, and investability.
Perhaps more telling than the average return profile is the path those returns take. Even in cases where IPOs ultimately go on to succeed, the early experience for investors is rarely smooth. In the sample of largest U.S. IPOs since 2000 shown here, each experienced a drawdown of at least 10% within its first year of trading, with a median maximum drawdown exceeding 50%. While this is a limited sample, it reinforces how even the largest, high-profile public offerings have historically been accompanied by significant volatility.
Understanding why this happens is an important nuance. IPO pricing often reflects a high degree of optimism, with valuations that already embed strong expectations for growth and execution. At the same time, the supply of publicly available shares is initially limited, with insiders and early investors typically subject to lockup periods. This creates a dynamic where demand outstrips supply in the early days, but where additional shares gradually enter the market over time, often putting pressure on prices. Layer these dueling forces onto the nuance of the business, a limited public-market operating history, and prevailing macro forces, and it becomes clear why early price discovery can be both volatile and uneven.
Forward Returns and Maximum First-Year Drawdowns for Largest U.S. IPOs (2000–2024)
| 1 Week | 1 Month | 3 Months | 6 Months | 12 Months | Year 1 Max Drawdown | |
|---|---|---|---|---|---|---|
| Visa | 13% | 22% | 49% | 23% | -7% | -52% |
| General Motors | -2% | -0.6% | 7% | -8% | -37% | -49% |
| -17% | -18% | -45% | -42% | -31% | -54% | |
| Rivian Automotive | 45% | 15% | -36% | -77% | -67% | -88% |
| AT&T Wireless | -4% | -17% | -10% | -30% | -36% | -52% |
| Kraft Foods | -3% | -2% | 5% | 4% | 40% | -10% |
| Uber | 1% | 3% | -4% | -34% | -21% | -68% |
| CIT Group | 4% | -5% | -22% | -8% | 13% | -41% |
| Blackstone | -17% | -25% | -28% | -32% | -48% | -59% |
| Coupang | -11% | -7% | -23% | -36% | -65% | -65% |
| Median | -3% | -4% | -16% | -31% | -34% | -53% |
| Average | 1% | -3% | -11% | -24% | -26% | -54% |
Source: Bloomberg Finance L.P. Price data covers 01/01/2000 through 12/31/2024 to capture full 12-month return and drawdown data. IPO data includes U.S. companies only and excludes closed-end funds, REITs, SPACs, and other special-purpose entities.
The Broad Market Impact from IPOs
How will the anticipated SpaceX, OpenAI, and Anthropic IPOs impact market indexes?
Each index provider has its own rules for when and how to add newly public companies. Historically, most required a seasoning period after an IPO before a company becomes eligible. However, the scale of currently proposed listings appears to prompt providers to revisit long-standing criteria.
There are a few important points to keep in mind:
- While pending IPOs (SpaceX, OpenAI, Anthropic, etc.) are expected to set a new highwater mark on valuation, the actual number of shares listed on the exchange (also known as the float) is anticipated to be in the single-digit percentages of total ownership. Many initial holders of the publicly traded shares will also be subject to a 6-month lock-up period.
- IPO shares are expected to be included in most major U.S. equity indexes within five to 15 days post-IPO, except for the S&P and MSCI indexes (though timing and inclusion are subject to change).
- Because only a limited number of shares are available at the outset, weightings for these names are expected to be less than 0.30% each, if not smaller.
- Most passive providers (e.g. Vanguard, State Street, BlackRock) are expected to follow the lead of the index providers in deciding when to include positions within their products and at what weight.
Index Inclusion Timelines by Major Provider
| Index Provider | Index | Inclusion Timing | Initial Weight (est.) | Notes |
|---|---|---|---|---|
| NASDAQ | Nasdaq Composite | Near-immediate after listing | SpaceX ~0.3-0.6% | Broad universe; minimal gating requirements. |
| NASDAQ | Nasdaq-100 | ~15 trading days (fast entry effective May 2026) | SpaceX ~0.2-0.4% | Low-float names weight-capped; scale up as float increases. |
| FTSE Russell | Russell 1000 | ~5 trading days (fast entry finalized May 2026) | SpaceX ~0.1-0.2% | Fast Entry for top-500 sized IPOs; float/vote flexibility during lockups. |
| S&P Dow Jones | S&P 500 | Standard 12 months post-IPO. No fast entry. | SpaceX ~0.08-0.15% | SpaceX will remain subject to the same admission standards as other companies seeking entry into the S&P 500. |
| CRSP (Morningstar) | U.S. Large Cap / Total Market | ~5 trading days (existing fast-track; float test eased Apr 2026) | SpaceX ~0.1-0.2% | Alternate float-adjusted market cap test enables low-float entry. |
| MSCI | MSCI USA / ACWI | Next regular review (no fast-track) | SpaceX ~0.05-0.15% | No special rule change; standard free-float size thresholds apply. |
Estimated weights and timelines are illustrative and subject to change at each provider’s discretion.
What This Means for Investors
Bringing this together, the tension around IPO investing is evident. The underlying companies can appear attractive, and they may go on to play an important role in markets, portfolios, and the economy. But the IPO itself, the moment when shares first become publicly available, is rarely the most favorable point of entry.
This is where our philosophy comes in. We believe markets work. Prices reflect the collective information and expectations of millions of participants, and that information is thin when a company first lists. As these companies begin trading, more shares enter the market, operating history accumulates, and information becomes publicly available, we expect market participants to price them more accurately over time. Our evidence-based approach is informed by history, and that is precisely why we generally would not recommend participating in IPOs.
As investors and as beneficiaries of technology, we are excited to see these companies go public. But from an investment standpoint, we will continue to rely on a disciplined approach: gaining exposure to the underlying businesses through public markets as they season, liquidity improves, and valuations adjust. Framed this way, an IPO is less about fear of missing out and more about recognizing when an opportunity naturally fits into a portfolio, without adding unnecessary drag along the way.
This material is intended for informational and educational purposes only and should not be construed as personalized investment advice or a recommendation to participate in any specific investment strategy, including IPOs. Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. Investment decisions should be based on an individual’s objectives, time horizon, and risk tolerance.
Adapted with permission from material originally produced by Fiducient Advisors / Wealthspire Advisors. Past performance is no guarantee of future results.