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.
Casey also explained the spin-off research and investment strategy behind the recently launched Market Vectors Global Spin-Off ETF (NYSEArca: SPUN), which tries to reflect the performance of the Horizon Kinetics Global Spin-Off Index, which equally weights components.
Specifically, SPUN will build a position in the early stages after a spin-off occurs, capitalizing on short-term selling pressure to buy low. Additionally, index components will be held for five-years to capture any potential long-term opportunities.
“Early, long-term stock positions allow index to capture full spin-off cycle,” according to Horizon Kinetics.
Looking at back-tested historical data, the Horizon Kinetics Global Spin-Off Index has returned an average annualized 14.97% from the end of 2003 through the end of May, 2015. In contrast, the MSCI World Index returned an average 7.0% over the same period.
Additionally, SPUN tracks global opportunities, including a large tilt toward the U.S. 66.3%, along with U.K. 6.5%, Australia 5.5%, Finland 3.4%, Switzerland 2.4%, France 2.4%, China 1.7% and Ireland 1.5%, among others.
Financial advisors who are interested in learning more about company spin-offs can listen to the webcast here on demand.