The Guggenheim Spin-Off ETF (NYSEArca: CSD) is the established name among exchange traded funds dedicated to corporate spin-offs and that ETF has a long tradition of outpacing the S&P 500.
A spin-off 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.
Spin-offs have been a a popular way to unlock shareholder value, potentially creating more focused and higher quality brands.
“In a study of 168 large ownership restructurings from 1988 to1998, spin-offs substantially outperformed the market. They showed a two-year annualized return of 27%, compared with 14% for the Russell 2000 and 17% for the S&P 500,” reports ETF Daily News, citing McKinsey data.
The VanEck Vectors Global Spin-Off ETF (NYSEArca: SPUN) is a competitor to CSD.