Corporate spinoffs remain a popular avenue for attempting to unlock shareholder value on Wall Street, but that popularity does not always translate into performance.
“New research finds these moves (spinoffs), pursued as value-unlocking opportunities by companies, have tended to lag the market, at least in the short-term. Some 55% of spun-off companies over the past two years have trailed the S&P 500 since going public,” reports Liz Hoffman for the Wall Street Journal, citing research from R.L. Lafferty & Co.
The spin-off disappointment hit the Guggenheim Spin-Off ETF (CSD) this year. CSD is up just two-thirds of a percent for the year, well behind the 12.6% gained by the S&P 500.
While past performance is never an indicator of future returns, it cannot be ignored that the focused CSD has a legacy of out-performance over the broader market. In fairness to the nearly $530 million CSD, the ETF rarely makes a habit of lagging the S&P 500 on an annual basis. [Spin-Off ETF Looks for Lost Magic]
This year will be just the second since 2008 that CSD has trailed the benchmark U.S. index and when CSD beats the broader market, it usually does so by wide margins. For example, the ETF rose 52.1% last year while the S&P 500 gained 32.3%. In 2012, CSD surged 26.4% compared to a 16% gain for the S&P 500.
Looking ahead to 2015, there is of course a chance CSD will rebound with much of that chance being predicated on the broader market’s whims. CSD’s positive traits include a favorable sector mix, which is important because some sectors have a penchant for turning out laggard spinoffs.
Some recent energy spinoffs have been duds, but health care and consumer sector spinoffs have delivered better performances, according to the Journal.
Energy is CSD’s fourth-largest sector weight at 13.2%, but that is well behind the 22.4% the ETF allocates to consumer discretionary stocks. CSD devotes over 30% of its combined weight to health care and consumer staples stocks.
Guggenheim Spin-Off ETF