The global spin-off exchange traded fund can provide exposure to attractive growth opportunities around the world.
On the recent webcast, Capture the Full Potential of Spin-Offs Globally, Salvator Tiano, Research Analyst for Horizon Kinetics, pointed out that business spin-offs have exhibited a long-history of generating attractive returns.
For instance, Tiano said that in the study Restructuring through spinoffs: The stock market evidence, a portfolio of 161 spin-offs in 1965 through 1988 outperformed the a portfolio of non-spin-off firms for rolling 3-year holding periods by 9.97% per year. Moreover, the spin-offs showed an unusually high incidence of takeovers, which helped contribute to the price returns.
“Once separated, these companies can create shareholder value by pursuing strategies that may not have been feasible were they still operating within its previous corporate structure,” according to Horizon Kinetics. “The use of a spin-off strategy as a predictive index variable has historically provided relative returns well in excess of the broader market.”
Ryan Casey, Research Analyst for Horizon Kinetics, further explains that following a spin-off, management is more free to implement business and financial strategies that are more beneficial to the smaller business, rather than be allocated as a secondary concern to a larger controlling conglomerate. Specifically, spin-offs’ management can implement better capital allocation, operations and personnel, improved alignment of incentives and diminished conflicts of interest.
“Spin-offs emerge as pure plays in the market and more likely to be acquired,” Casey said.