For various reasons, institutional investors typically are not big supporters of stock splits. Nor is Wall Street, probably because a company’s decision to split its shares does involve fees to that firm’s investment bank of choice.
Those points do not prevent companies from splitting their shares, as highlighted by a recent uptick in split activity. Thirteen companies have engaged in traditional forward splits this year, according to Fidelity, but Fidelity’s split calendar has not been update to reflect last week’s 2-for-1 split announcement from Starbucks (NasdaqGS: SBUX) and Tuesday’s 2-for-1 announcement from Ross Stores (NasdaqGS: ROST).
Exchange traded fund investors can play increased split activity with the USCF Stock Split Index Fund (NYSEArca: TOFR), which debuted in September. TOFR is the first non-commodities ETF courtesy of U.S. Commodity Funds, the ETF issuer behind popular commodities ETFs, such as the United States Oil Fund (NYSEArca: USO), United States Natural Gas Fund (NYSEArca: UNG) and the United States Brent Oil Fund (NYSEArca: BNO). [An ETF for Split Stocks]
TOFR benchmarks to the 2 for 1 Index, an equal-weight index that is currently home to 30 companies. “Each month, the 2 for 1 Index is updated on the Friday closest to the 15th of that month. The pool of eligible companies is evaluated and ranked according to a proprietary methodology, and the top ranked choice is selected for the Index. One new stock is added to the Index, and the oldest stock is removed,” said USCF in the statement.
That means Visa (NYSE: V), Starbucks and Ross Stores could be new additions to TOFR when the ETF’s index is updated next month.
While the index is the 2 for 1 Index, that does not mean TOFR is limited to stocks that have split on that basis. For example, Apple (NasdaqGS: AAPL) which underwent a 7-for-1 split last year, is a member of TOFR’s lineup. Other well-known companies held by TOFR include DaVita HealthCare Partners (NYSE: DVA), Colgate-Palmolive (NYSE: CL) and Union Pacific (NYSE: UNP).
Institutional investors may loathe stock splits, but that does not diminish the potency of forward splits.
“The academic studies of stocks undergoing splits suggest that you could beat the market by simply creating a portfolio that contained all stocks undergoing a so-called forward split (the opposite of a reverse split). But MacNeale believes he can do even better by investing only in stocks that, at the time of their splits, are trading for relatively low ratios of price to earnings or book value ,” writes Mark Hulbert for MarketWatch.
A University of Virginia confirms that splits boost liquidity via increased post-split buying by, if you can believe it, mutual funds.
Since June 2014, the month in which Apple announced its split, shares of the iPad maker are up 41.1%. TOFR is up almost 8% since coming to market while the S&P 500 is higher by 4.2% over that period.
USCF Stock Split Index Fund
