UK and European funds shun Deliveroo

UK and European investors have overwhelmingly shunned Deliveroo, with data showing that just four out of 18,000 mutual funds in the continent have invested in the food-delivery company since its disastrous initial public offering in March.

Deliveroo’s IPO was dubbed the worst in London’s history after its share price fell 26 per cent on its opening day. Two months on, its shares are still trading at more than a third below their 390p listing price, closing on Friday at 251p.

Investors spoke out ahead of the IPO saying they would avoid the company because of concerns over its dual-class share listing, governance and labour standards.

According to data from Morningstar, the only UK-domiciled fund to disclose it had invested in Deliveroo is managed by River and Mercantile for the wealth manager AFH Group. The other three funds to hold the stock are Spain-based Enginyers Accions Europa fund and two Europe-domiciled funds from Morgan Stanley and Franklin Templeton.

Morgan Stanley, Franklin Templeton, AFH Group, and River and Mercantile declined to comment. Caixa d’Enginyers did not respond to a request for comment.

Almost all mutual funds that backed Deliveroo are domiciled in North America, including funds from Fidelity, T Rowe Price and Federated Hermes, according to Morningstar.

Tom Powdrill, head of stewardship at Pirc, the UK proxy adviser, said it was “striking that those closer to the action — both in terms of the listing and where Deliveroo does much of its business — are far less likely to invest” in the London-based company.

“If I was a US investor I think the lack of domestic support for the stock would be something to keep an eye on,” he added.

He said that this was potentially driven by European investors’ growing interest in environmental, social and governance issues.

Colin Baines, investment engagement manager at Friends Provident Foundation, said the coronavirus pandemic had brought social issues such as work conditions to the fore. “Having Deliveroo in portfolios is a sure-fire way to flag to clients that perhaps they’re not integrating social issues [into investment decisions] that well.”

Deliveroo said that more than a third of its shareholding is from investors based in the UK, including the British arms of international asset managers. Morningstar’s data cover 40,000 open-ended funds globally, including 18,000 domiciled in the UK and Europe.

Shares in other online food delivery companies, from Ocado to Just Eat Takeaway, have also underperformed in recent weeks, as investors feared the sector would lose out now that diners are allowed to return to restaurants.

But according to a recent report from Takealytics, a research outfit that tracks food apps, delivery “seems to have stood up well”, thanks in part to promotional activity.

Large institutional investors had also expressed concerns about Deliveroo’s dual-class structure, which gives Deliveroo’s co-founder Will Shu enhanced voting power. This share structure excludes it from London’s premium listing, leaving some investors unable to buy the stock.

“We would have no power to do anything [because of the rights the chief executive will hold for three years]. The CEO could run the business however he likes for years,” said Andrew Millington, head of UK equities at Aberdeen Standard Investments, ahead of the IPO.