Individual investors can exploit a spinoff (defined as a division of a company that is turned into


Individual investors can exploit a spin‐off (defined as a division of a company that is turned into a separate publicly held company), better than institutional investors in some cases. Some institutional investors will not purchase the new companies because they often pay no dividends immediately after spin‐off, and they may be too small to be held by some institutions. Furthermore, unless the spin‐off is unusually large, it is often ignored by security analysts. These companies often look unattractive at the time of spin‐off because they had problems as a division. However, these problems tend to be solved by a new, proactive management, and these companies become attractive as take‐over candidates. One way to track the performance of spin‐off companies is through ETFs that invest solely in spun‐off companies. One example is the Guggenheim Spin‐Off ETF (Symbol: CSD). From the market bottom of March 2009 through mid‐April 2014, the S&P 500 had returned 201 percent. The Guggenheim Spin‐Off ETF had provided investors with nearly double that return—an outstanding 379 percent over that same time period. Investors are advised to defer purchases of spin‐offs until they have been trading for a few weeks because some institutions sell the shares they receive in a spin‐off, and prices are often lower weeks later than at the time trading begins in the new companies. With a newly energized management team who have stock options, these companies often do very well.

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Investments Analysis And Management

ISBN: 9781118975589

13th Edition

Authors: Charles P. Jones, Gerald R. Jensen

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