Do Stock Spinoffs Still Outperform? A Summary Of The Research
Ever since I read, You Can Be a Stock Market Genius , I’ve been fascinated with stock spinoffs. The book is written by Joel Greenblatt, who is a certified rock star in the value investing community. When he was running his highly concentrated hedge fund, he returned over 50% annually for a decade. Incredibly impressive. In the book, Greenblatt devotes chapter 3 to spinoffs. In that chapter, this line caught my eye: There are plenty of reasons why a company might choose to unload or otherwise separate itself from the fortunes of the business to be spun off. There is really one reason to pay attention when they do: you can make a pile of money investing in spinoffs. The facts are overwhelming. Stocks of spinoff companies, and even shares of the parent companies that do the spinning off, significantly and consistently outperform the market averages . Now this book was written in 1997. Since then, many a hedge fund manager has read the book and the “spinoff anomaly” is relatively well known. You would think that this inefficiency in the market would fade with time as more investors look to exploit it. As such, I wanted to review all studies that are available to see if spinoffs still do, in fact, outperform. Here is what I found: Here are the links to learn more about each study: Restructuring Through Spinoffs: The Stock Market Evidence J.P Morgan Research Report Corporate Spinoffs Beat The Market Credit Suisse: Do Spinoffs Create or Destroy Value The Stock Price Performance of Spinoff Subsidiaries, Their Parents, and the Spinoff ETF Global Spinoffs & The Hidden Value of Corporate Change In short, the answer is “Yes, spinoffs still outperform.” If you want to invest in spinoffs, consider investing in the Guggenheim Spinoff Index (NYSE: CSD ). But if you would prefer to pick your own spinoffs, stay tuned. I will be publishing a series of articles on the stock spinoff market and how to pick the winners. If you would like to read them, follow me on Seeking Alpha and you will be notified when I publish new research. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.