Spinoffs Fared Poorly in 2021. What It Takes for These Stocks to Outperform.

- Advertisement -

A Victoria’s Secret store in New York. The lingerie chain was discontinued by L Brands in July.

- Advertisement -

Nina Westervelt / Businesshala

- Advertisement -

It wasn’t a banner year for spinoffs in 2021, as 17 of 19 new jettison companies ended up in the red, according to Spinoff Advisors, a Chicago-based firm that monitors the market.

Spinoffs have historically delivered market-beating returns and the 2020 harvest includes winners such as Carrier Global (ticker: CARR) and Otis Worldwide (OTIS).

- Advertisement -

Last year’s losers included Organon (OGN), which was spun off by Merck (MRK); IAC/InterActiveCorp (IAC) to Vimeo (VMEO); Victoria’s Secret (VSCO) from Kindreel Holdings (KD) and Bath & Body Works (BBWI) from IBM (IBM).

There were some major declines in a year when the S&P 500 returned 28.7%. Vimeo, which allows users to create videos, fell 61.1% from its May spinoff to December 31, while Lucid Diagnostics (LUCD) was the worst in the group, compared with a 61.9% drop from its split in October.

The only two winners were GXO Logistics (GXO), which was up 44%, and DT Midstream (DTM), which was up 14.2%.

Joe Cornell, founder and CEO of Spinoff Advisors baron’s That 2021 performance is not unusual as spinoffs have historically underperformed the market for three to six months after their separation.

This may reflect a sale by the former parent’s holders who do not wish to take ownership of the spinoff. Indexers can also sell because spinoffs are small or mid-cap companies that are not initially in the major index. Spinoffs often begin their independent corporate lives as orphans, with little investor and analyst attention.

Good things can happen after the initial period as the incentive management of new companies is able to act more decisively and autonomously than the old regime.

Cornell says there is “better performance from six months to three years after delivery.” He says it may take a year or two for management to get into a groove and be rewarded by investors.

The $73 million Invesco S&P spin-off exchange-traded fund (CSD) trades around $62 and is up 7% over the past year, well behind the S&P 500. Its largest holdings include older spinoffs such as Carrier, Otis, Dow. and Corteva (CTVA). The ETF holds spinoffs executed during the past four years.

The Businesshala Spinoff Index has an excellent long-term record, returning 14.6% annually from January 1, 2003 to the end of 2021, compared to 11.5% for the S&P 500 Index. The Businesshala index returned 21.6% last year, seven percentage points behind the S&P 500.

Write to Andrew Berry at [email protected]


- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox