Van Eck Global, an exchange-traded fund provider known for producing non-cookie-cutter funds, rolled out its latest product this week with the launch of the Market Vectors Global Spin-Off ETF (SPUN).
The fund’s benchmark is the Horizon Kinetics Global Spin-Off Index, a rules-based, equal-weighted index comprising 86 publicly traded spin-offs in developed markets in the U.S. (67 percent of the index allocation), Europe (roughly 23 percent), and Asia and Australia/New Zealand (about 9 percent). SPUN’s net expense ratio is 0.55 percent.
Corporations divest, or spin-off, smaller subsidiaries for a variety of reasons, but the ultimate goal is to unlock shareholder value by freeing a smaller unit whose core business is ancillary to the parent company and whose potential value isn’t getting sufficient credit in the marketplace.
Horizon Kinetics is an index provider that has conducted spin-off industry research for nearly 20 years. Regarding the Horizon Kinetics Global Spin-Off Index, it adds a spin-off company to the index in the first quarter after it separates from its parent company because its research finds that the first year of life as an independent entity is typically the best year for a spin-off's stock due to valuation disconnects caused by selling pressure and pricing inefficiencies.
And the index holds its constituents for five years to take advantage of potential long-term catalysts such as improved operating efficiency, greater analyst coverage and increased possibility of being acquired.
Horizon says its research shows that a portfolio of spin-off securities has historically outperformed the broader equity markets over a multi-year time period.
Investors seeking a proxy for the SPUN fund can look to the Guggenheim Spin-Off ETF (CSD). That fund tracks the Beacon Spin-off Index, which comprises 40 U.S.-listed spin-off companies that were spun-off within the past 30 months but not more recently than six months prior to the applicable semi-annual rebalancing date. The fund is weighted on a modified market-cap basis, with a maximum weight of 4.5 percent.
Since its December 2006 inception, the CSD fund has gathered $544 million in assets and produced annualized returns (through May 2015) of 9.1 percent versus 10.66 percent for the S&P 500 total return index, according to Scottrade.