Companies have spun off departments as a popular way to unlock shareholder value, potentially creating more focused and higher quality brands. Investors can also tap into this segment of the market specialized exchange traded funds.
Spin-off stocks have been among the best performing areas of 2016. Year-to-date, the Guggenheim Spin-Off ETF (NYSEArca: CSD) rose 16.0% and VanEck Vectors Global Spin-Off ETF (NYSEArca: SPUN) increased 23.9%.
The two strategies have outperformed the broader market, with the S&P 500 index up 12.1% this year, as
CSD tracks the S&P U.S. Broad Market Index, which contains all spin-off added to the S&P U.S. BMI that have a float-adjusted market cap of at least $1 billion.
Top holdings include Synchrony Financial 8.2%, Hewlett Packard 7.7%, Zoetis 7.4%, PayPal 7.2% and Abbvie 7.0%. Top sector weights include a hefty 24.3% tilt toward information technology, followed by 17.8% healthcare and 14.4% consumer discretionary.
Unlike CSD, the competing SPUN targets global spin-offs through the Horizon Kinetics Global Spin-Off Index, a rules-based, equal-weighted index that tracks publicly held spin-offs domiciled and traded in the U.S. or developed markets of Western Europe and Asia. Country weights include a large 81.1% position in U.S., along with China 3.8%, Australia 2.4%, Finland 2.4% and U.K. 2.1%, among others.
VanEck Vectors Global Spin-Off ETF
SPUN will also 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. Top components include Chemours 2.0%, Global Brands Group Holding 1.8%, Navient 1.5%, Hyster-Yale Materials Handling 7.5% and Wpx Energy 1.5%.
The ETFs benefit from the stock price appreciation that typically accompany a company spin-off.
A spinoff is the creation of an independent company through the sale or distribution of new shares of existing business or division of a parent company, according to Investopedia. Spinoffs can increase returns for shareholders due to the newly independent company’s ability to better focus on specific products or services. Both the parent and spin-off typically perform better through less bloat as a result of the transaction, with the spin-off often outperforming.
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