Spin-Off ETF: Can The Outperformance Continue?
Zacks Investment Research | Oct 13, 2017 12:20AM ET
Spin-off activities have stepped up lately, with biggies like Honeywell International (NYSE:HON) and Pfizer (NYSE:PFE) being the most active ones. Lately, the industrial giant Honeywell announced plans of spinning off its homes and global distribution units and its transportation systems unit into two publicly traded companies past three years .”
This clearly explains why Pfizer intends to concentrate on the more promising, innovative pharmaceutical unit and separate it from Consumer Healthcare. The move also signifies the likely introduction of more deal-making, as per Wall Street Journal. However, the company also kept open chances of retaining the business .
Inside Spin-offs
Sometimes businesses form another autonomous entity from an existing business/division, when they believe that the separated line would add more value as an independent company. In such situations, the parent can focus on its core business management while the new entity can focus on its relative different goals.
How Profitable Spin-offs are to Investors?
According to benzinga , spun-off entities have been performing better than parent companies lately.
PayPal (NASDAQ:PYPL) (up about 114%) generated higher gains than parent eBay (NASDAQ:EBAY) (up about 56%) in the last two years (post spin-off). WhiteWave Foods Co WWAV gained about 67.8% in the last three years against an 11.2% decline in Dean Foods Co (NYSE:DF) . WhiteWave Foods was spun off in May 2013. Abbot Laboratories (NYSE:ABT) cut ties with part of its business and formed a new company called AbbVie (NYSE:ABBV) in Jan 2013. ABBV was up 85% while ABT gained 41% in the last three years (as of Oct 12, 2017).
What’s Behind the Recent Surge in Spin-Off
A Chicago-based partner at The Boston Consulting Group recently commented that in a bull market, which we are witnessing currently, equities are overvalued. This makes materialization of mergers and acquisitions difficult. Instead, high valuations better justify “4 Bargain ETFs in a Pricey Market ).
Notably, the United States saw 88 completed spinoffs in 1999, which fell to 80 in 2000, when the dot-com bubble burst. The number further declined to 55 in 2001. The number of actions again rose from 24 in 2007 to 30 in 2008, before sliding to 17 in 2009 when the financial crisis kicked in, as per the data provided by Dealogic, quoted on CNBC. The momentum again gained momentum in 2015 by value, though 2016 and 2017 have been subdued.
ETFs to Play
There are always ways to play such corporate actions. Below we highlight two spin-off ETFs in detail. These ETFs can get further boost from Honeywell and Pfizer’s announcements.
Get The News You Want
Guggenheim S&P Spin-Off ETF (AX:CSD)
The 61-stock fund looks to track the S&P U.S. Spin-Off Index. Paypal Holdings (7.98%), Hewlett Packard Enterprise (7.85%) and Synchrony Financial (7.39%) are the top three holdings of the fund. CSD charges 65 bps in fees (read: PayPal's Strong Q2 Results Put These ETFs in Focus ).
VanEck Vectors Global Spin-Off ETF SPUN
The 95-stock fund follows the Horizon Kinetics Global Spin-Off Index, which is a rules-based, equal-weighted index intended to track the performance of listed, publicly held spin-offs that are domiciled and trade in the U.S. or developed markets of Western Europe and Asia. The net expense ratio of the fund is 0.55%. United States accounts for about 78.8% of the fund. Gannett Co (1.2%), Time Inc. (1.1%) and Timkensteel (1.1%) are top three stocks of the fund.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.