Do spinoffs actually outperform the market? We often receive this question and point to Joel Greenblatt’s work and some other older studies. Luckily there are other people still examining the data for us and new research by Credit Suisse’s quantitative team (highlighted in this Barron’s ‘Focus on Funds’ blog) suggests the answer is still yes. According to CS’s findings, when looking over the past 17 years, the 12-month outperformance over the S&P is “9.6% for the parent and 13.4% for the spinoff.” Not too shabby!
The caveat is that on average, spinoffs actually underperform during their first 27 trading days and by 60 days the excess return is only ~2.2%. Additionally, the standard deviation is quite high during the first 30 days – 11.7% standard deviation for the parent and 16.1% for the spinoff. Those swings can be tough to stomach or a real joy to revel in if going the right way. This shouldn’t be too surprising as many spins are subject to ‘forced selling’ in the beginning and there is a general unfamiliarity with the names as independent companies.
It’s always nice to see research backing your investment philosophy and website. No, no confirmation bias here. The truth is it would be interesting to see a study focusing solely on more recent data though to see if anything has changed. Our opinion is pretty clear, but what do you think?
Disclosure: Author holds no position in any stock mentioned.