Next Year Could Be Interesting For Spin-Off ETFs

Data confirm 2015 has been a busy year for spinoffs.

“This year has seen 79 completed spinoffs, valued at $244.9 billion, according to data from Dealogic. The dollar value of the spinoffs is the highest seen in at least 20 years, according to Dealogic data stretching back to 1995,” according to the Wall Street Journal. 

However, the uptick in spinoff activity has not been a boon for spinoff exchange traded funds. For example, the Guggenheim Spin-Off ETF CSD is flirting with a year-to-date loss of 12 percent. That means CSD is facing its worst annual performance since last year when the ETF gained 1.1 percent and will likely lag the S&P 500 for just the second time in the past seven years.

The Market Vectors Global Spin-Off ETF SPUN has struggled as well, shedding 13 percent in the six and a half months since it came to market. Although SPUN is a global ETF, the fund allocates over 78 percent of its weight to U.S. stocks, more than 15 times more than is devoted to Australia, the ETF's second-largest country allocation.

Although the two spinoff ETFs have floundered this year, there is rebound potential in 2016 as a spate of new spinoffs hit the market. As Benzinga reported Monday, Cantor Fitzgerald expects as many as 24 spin-offs in 2016, with seven transactions possible by the end of Q1. 

SPUN, the Market Vectors offering, has some flexibility to add spinoffs soon after the stocks come to market. CSD, the larger and older of the two spinoff ETFs, “includes companies that have been spun-off within the past 30 months (but not more recently than six months prior to the applicable rebalancing date),” according to Guggenheim.

Historically, healthcare spinoffs have been the best-performing spinoffs while shed businesses from the energy patch have been the worst. Next year is expected to bring a spate of chemicals and materials spinoffs. The materials sector accounts for 2.5 percent of CSD and 5.5 percent of SPUN.

Gannett Co. Inc. GCI, Barnes & Noble Inc. BKS and KLX Inc. KLXI are among the spinoff stocks Cantor Fitzgerald likes at the moment. Gannett is held by SPUN to the tune of almost 1.5 percent. No stock accounts for more than 1.89 percent of that ETF's weight.

KLXI is almost 2.8 percent of CSD. Other well-known names in that ETF include Zoetis Inc. ZTS and Mallinckrodt Plc MNK.