Like Stock Splits? There’s an ETF for That
Stock splits make for good headlines and some investors do like knowing they have more shares of a particular company, though those shares are not worth more (or less) simply because a share split occurred.
Investors that like stock splits now have a new avenue for adding a group of split stocks to their portfolios with the USCF Stock Split Index Fund (TOFR) , which debuted on Tuesday. USCF is the company behind popular commodities ETFs, such as the United States Oil Fund (USO) , United States Natural Gas Fund (UNG) and the United States Brent Oil Fund (BNO) .
The Stock Split Index Fund represents USCF’s first foray into equity-based ETFs and while the new ETF may seem like too much of a good thing when it comes to niche ETFs, data prove otherwise. TOFR “is based on a model portfolio of the stocks of companies that have recently split, as published each month in the “2 for 1 Newsletter”. The “2 for 1 Newsletter” is an investment newsletter that publishes research and analysis, including a model portfolio, and has been published monthly since 1996,” according to a statement released by USCF.
The “2 for 1 Newsletter,” published by Neil Macneale, has delivered annual realized returns of 11.2% since inception in August 1996, according to the publisher.
The 2 for 1 Index is home to about 30 U.S.-listed companies that have all announced a 2 for 1 split within six months prior of being added to the index. “Each month, the 2 for 1 Index is updated on the Friday closest to the 15th of that month. The pool of eligible companies is evaluated and ranked according to a proprietary methodology, and the top ranked choice is selected for the Index. One new stock is added to the Index, and the oldest stock is removed,” said USCF in the statement.
No stock accounts for more than 3.33% of the index’s weight. Current holdings include familiar names such as Apple (AAPL), Dow component Coca-Cola (KO) and Colgate-Palmolive (CL).
Investors would do well to acknowledge the potency of stock splits.
“The academic studies of stocks undergoing splits suggest that you could beat the market by simply creating a portfolio that contained all stocks undergoing a so-called forward split (the opposite of a reverse split). But MacNeale believes he can do even better by investing only in stocks that, at the time of their splits, are trading for relatively low ratios of price to earnings or book value ,” writes Mark Hulbert for MarketWatch.
And while the concept of an ETF devoted to stock split is sure to ruffle the feathers of some ETF traditionalists, it cannot be forgotten that ETFs focusing on concepts such as buybacks and spin-offs have not only proven popular with investors, but have also soundly outpaced the broader market as well. [Spin-Off ETF Looks to Resume Out-Performance]
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of Apple.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
