Mike Santoli: Stock Spinoffs Had a Very Good 2012

By on February 11, 2013

Mike Santoli - BarronsBarron magazine’s Mike Santoli has written about the superlative outperformance of spun-off stocks last year. The vagaries of this subsection of the stock market have been written about frequently over the years. Entire books have been devoted to what appears to be a major market inefficiency. 1997’s Spinoff to Payoff: An Analysis Guide to Investing in Corporate Divestitures devoted 200 pages to the topic.

I’ve noticed a strong tendency of the spinoffs in my own portfolio generating superior returns. Unfortunately, they tend to be very small positions unless I make an effort to add to the spun-off stock. Marathon Petroleum, which was spun-off from Marathon Oil has been one of the best performers in the Stock Market Advantage portfolio.

Santoli mentions suprising data in his article:

The Bloomberg Spin-Off Index, which tracks the stocks of hived-off corporate divisions, is up 41% in the past year, compared with about 12% for the Standard & Poor’s 500 Index.

Santoli also provides the reasoning behind this outperformance anomaly:

The mechanics often mean the spun-off company is orphaned at first, its shares lacking analyst coverage, handed to investors who never chose to buy them and often to index funds which must sell them. In the first month or two, therefore, the stocks tend to be pressured by forced selling and investor neglect, before being “discovered,” at which point their typical outperformance begins.

Santoli goes on to mention specific spun-off stock’s performance last year and a recent spinoff investors might find attractive; AbbVie (ABBV). He also speculates on which companies might have spinoffs in the future.

Source: Yahoo Finance

One Comment

  1. Berger

    August 28, 2013 at 1:33 pm

    Spin-offs are intriguing, but could provide investors a wild ride.

    Guggenheim offers an ETF specializing in spin-offs. The symbol is CSD. The performance from the bottom in 2009 has been remarkable; almost double the SPY return. However, a recent Barron’s magazine revealed it dropped at a much faster rate than the index in that bear market 5 years ago.

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