SPUN Cycle: Grabbing Global Spinoffs

Spinoffs are one avenue for companies to create shareholder value, and history has shown that some spinoffs have the potential to outperform the former parent. Those themes are accessible via exchange-traded funds.

The VanEck Vectors Global Spin-Off ETF SPUN is one of the spin-off ETFs for investors to consider. SPUN, which debuted in mid-2015, follows the Horizon Kinetics Global Spin-Off Index (GSPIN), “which is a rules-based, equal-weighted index intended to track the performance of listed, publicly held spinoffs that are domiciled and trade in the United States or developed markets of Western Europe and Asia,” according to VanEck.

The Case For Spins

“In 2017, we believe that spin-off activity will remain high, with approximately 10 transactions currently expected to take place during the first half of the year,” said Horizon Kinetics in a note. “Further, a number of small-cap companies qualified for inclusion this quarter, as increasing prices for commodities such as oil, natural gas, base metals, and specialty chemicals have benefited equities (particularly in the materials and industrials sectors) with exposure to these commodities. As a result, the Index re-included a number of small-cap companies that had been Index constituents previously, but had been removed because they had fallen below the $500 million market-cap minimum.”

SPUN currently allocates 20.7 percent of its weight to consumer discretionary stocks and another 17.2 percent to real estate names. Industrial and technology stocks combine for over 28 percent of the global spin-off ETF's roster.

While SPUN is a global ETF featuring exposure to 12 countries, nearly 83 percent of the ETF's geographic weight is allocated to U.S. firms.

Another advantage of SPUN is that the ETF uses an equal-weight methodology.

Methodology

SPUN's index “exposure to small-cap stocks during the fourth quarter provided a boost to performance, with companies between $500 million and $2 billion accounting for the bulk of the Index's return. As a reminder, the Index uses an equal-weight methodology; this is meant to ensure that smaller capitalization constituents can have a meaningful impact on returns, while in a market-cap weighted index they would be dwarfed by the large-cap constituents,” noted Horizon Kinetics.