Business spin-offs provide an attractive growth play, and investors who would like to diversify with international stock exposure can take a look at the recently launched global spin-off exchange traded fund.
On the upcoming webcast, Capture the Full Potential of Spin-Offs Globally, Brandon Rakszawski, Product Manager for Van Eck Global, Ryan Casey, Research Analyst for Horizon Kinetics, and Salvator Tiano, Research Analyst for Horizon Kinetics, explain what spin-off business units are and the potential opportunities they provide for a global investor.
The recently launched Market Vectors Global Spin-Off ETF (NYSEArca: SPUN) tries to reflect the performance of the Horizon Kinetics Global Spin-Off Index, a rules-based, equal-weight index that tracks global spin-offs from the U.S. and developed markets of Western Europe and Asia. [Spinning Right Round: New Spin-Off ETF Debuts]
Spin-offs describe the creation of a new company through the sale or distribution of shares from an existing business, or parent company.
The spin-off typically generate better returns, compared to the parent company, since the new independent business can focus on a specific product or service over the long-term. While the spin-off may outperform, the smaller company is more volatile and could underperform in more turbulent conditions over the short-term.
SPUN includes some small-capitalization stock exposure at 16.4% of the fund’s portfolio, along with mid-caps 56.4% and large-caps 27.2%.
While SPUN targets global companies, the U.S. still makes up the largest portion of the ETF’s portfolio at 66.1%, followed by the U.K. 6.5%, Australia 5.5%, Finland 3.4% and Switzerland 2.5%. Since the portfolio includes foreign companies, the fund is also exposed to some currency risks – a weaker foreign currency could translate to lower U.S.-dollar-denominated returns.
Top sector tilts include consumer discretionary 25.3%, financials 19.1%, industrials 18.5%, materials 9.4% and energy 7.1%.
Additionally, components are equally weighted, so the fund’s largest weight is Global Brands Group Holding 1.6%, followed by Indivior 1.5%, Prothena Corp 1.4%, Starz 1.4% and Wpx Energy 1.4%.
The global spin-off ETF has a 0.55% expense ratio.
Potential investors should use limit orders to better control any trades on SPUN as the fund is relatively new and has not had time to build up an active market base.
Financial advisors who are interested in learning more about company spin-offs can register for the Wednesday, June 17 webcast here.