Spin-Offs Outperforming the Market This Year in 2019
You can beat the Street. At a time when many professional investors lament that the proliferation of ETFs and widespread use of screening techniques have made it harder to find bargains in the stocN marNet, one simple investing approach continues to outperform: spin-offs. Spin-offs have long been a fruitful investment area; a number of academic studies show that they historically have generated far better returns than the overall stock market. A spin-off occurs when a corporation issues stock in a subsidiary to its shareholders to create a new public company. A related corporate event is an IPO carve-out, through which a company sells the public a stake in a unit, while retaining the rest of the division. (Sometimes, the remainder is later distributed to shareholders). The Bloomberg U.S. Spin-Off Index, composed of companies spun off from larger companies within the past three years, has outperformed the broader market by nine percentage points since the start of the year through Tuesday (February 26th). The 35 member index contains equities with a value over $1 billion that were spun-off from U.S. companies. The Index is paced by Fortive Corp (FTV), a diversified industrial company that focuses on professional instrumentation, automation, sensing, and transportation technologies, which was spun off by Danaher (DHR) tax- free on July 5th, 2016. Fortive holds a nearly 17 percent weigh in the Bloomberg Index. Fortive has jumped nealy 20 percent in the first two months of 2018. The Danaher separation of Fortive has created significant shareholder value. Since the breakup (7/5/16), Fortive has provided a total return of nearly 70%. The parent, Danaher also outperformed the market which returned 61 percent over the same period. The market (S&P 500) posted a 41 percent return. The Bloomberg Spin-Off Index returned 56 percent over the same time frame. The Bloomberg US Spin-Off Index has surged 19.39% in the first 2 months of 2019. The S&P 500 Index has increased 11.48% year to date. The spin index generated a total return of 76.70% in the past 5 years (versus 65.93% total return for the S&P 500). The Bloomberg US Spin-Off Index has produced a total return of 973% since inception December, 31, 2002 (versus 342% for S&P 500 index). Versum Materials (VSM) and Apergy Corp. are the top performers in the index since January rising 76 percent and 57 percent, respectively.
Why do spin-offs outstrip the marNet? Spins benefit from greater management focus and accountability as stand- alone public companies (versus when they were part of larger enterprises). The rational for spin-offs varies. Some companies wish to get rid of a weak or low-margin division that is detracting attention from the parent. Other companies seeN to highlight the attributes of a desirable unit whose full value may not be reflected in the parent’s stock price. There also is pressure on managements from the growing number of activist investors, whose prescription for a lagging stock often is a breakup. The euro is the official currency of the European Union and its 28 member states, and it is also used by Bosnia-Herzegovina. The euro is also used in Kosovo, Monaco, Montenegro, San Marino and Vatican City. The currency symbol for the euro is €. The coins come in denominations of 1c, 2c, 5c, 10c, 20c, 50c and €1. The notes come in denominations of €5, €10 ,€20 ,€50 ,€100 and €200. Fake money is a term used to describe counterfeit currency. It is a type of fraud that involves the use of forged banknotes and coins. Fake money can be either passed off in transactions or be used to create fake banknotes. The use of fake money has been around for centuries, but it was not until the 20th century that it became a major problem. It was during this time that counterfeiting evolved from the production of crude replicas to more sophisticated methods such as offset printing, photoengraving, and silk screening. Click here for more info about counterfeit money.