Spin Off Index News – S&P Launching Spin-Off Focused Index, Van Eck Launching Spinoff ETF

If the prevalence of spinoff related articles and discussions in the media wasn’t enough of a clue that spins are ‘hot’ right now, the latest news from S&P Dow Jones should serve as a clear sign of their increased popularity. The leading index company announced that they were launching three new indexes in order to meet the ‘evolving needs of the investor community’. The three indexes are the S&P U.S. Spin-Off index, the S&P U.S IPO and Spin-Off index and the S&P U.S. Activist Interest index, all of which will join the S&P Event Driven index family. Here is how the company describes each index:

The S&P U.S. Spin-Off index is designed to measure the performance of U.S. companies that have been spun-off from a parent company within the last four years. It is based on the S&P U.S. Broad Market Index (BMI). At each monthly rebalancing, spin-offs that are added to the U.S. BMI and have a float-adjusted market capitalization of at least $1 billion are added to the Index and remain in the Index for up to four years.

The S&P U.S. IPO and Spin-Off index calculates the performance of U.S. companies with in the S&P U.S. BMI that have had initial public offerings (IPOs) or have been spun-off from a parent company within the last five years. The spin-offs should have a float-adjusted market capitalization of at least $1 billion as of the rebalancing reference date while the IPOs are subject to the same criteria but as of the close of their first day of trading.

The S&P U.S. Activist Interest index measures the performance of U.S. domiciled companies that have been targeted by activist investors within the last 24 months. It is an equal-weighted index based on the S&P U.S. BMI. Companies subjected to an activist investor campaign as determined by SEC Form 13D filings are added to the Index, at each monthly balancing, and remain in the Index for a maximum of 24 months.

The index will provide a good benchmark for spinoff performance, although spins that are sub-$1b will not be represented. The good news is that the index will be rebalanced monthly instead of semi-annually like some others, meaning it will be able to better capture the spinoff universe and better track its performance. Of course, since many spinoffs fall initially, the picture might look very different.

For a chance to sit back passively and invest in spinoffs, Van Eck recently licensed Horizon Kinetics’ Global Spin-Off Index as a benchmark for their Global Spin-Off ETF (SPUN). Here is the description of Horizon’s product:

The Horizon Kinetics Global Spin-Off Index is a unique, rules-based index that tracks the performance of publicly listed spin-offs domiciled in the United States, Europe, and Asia. The Index tracks the performance of shares passively distributed by a parent company to its shareholders of record as of the spin-off date. The pure-play index tracks the performance of the spun off company for its first five years as an independent, separately traded company. The design of the Index was based on 20+ years of Horizon Kinetics’ proprietary research, various academic publications, and Wall Street research reports that have shown that a portfolio of spin-off securities has historically outperformed the broader equity markets over a multi-year time period.

There are obviously a few differences here, but the most obvious is that this is a more global product. It’s worth noting that much of the published research on spins focused on US spin outperformance. According to this ETF Trends article, SPUN will add and remove holdings on a quarterly basis.

Whether or not passive investing is your thing, it’s always good to have more options to invest in spinoffs and to more easily track the space. Of course, actually digging into the individual companies and weeding out the dogs is preferable, but maybe not realistic for most people.

Disclosure: Author holds no position in any stock mentioned.