Oct. 10, 2017 8:16 p.m. ET
Spun-off companies tend to perform better than the broader market and—often—than their former parent
Among corporate executives, spinoffs of divisions have come in and out of favor over the years, but with one group they have been a steady crowd-pleaser: investors.
Including dividends, the S&P U.S. Spin-Off Index has outperformed the S&P 500 by nearly 190 percentage points over the past decade. The index is composed of companies with market capitalizations of more than $1 billion that have been separated out within the previous four years. Companies leave the index after that time has passed.
That helps explain why activists often push companies to break up or spin off one of their divisions. Hedge fund Third Point pressured Honeywell to spin off its aerospace unit in April. On Tuesday, the industrial heavyweight instead said it would cleave off about 20% of its revenue by spinning off its business that makes thermostats for the home and a unit that focuses on automobile turbochargers. Together, analysts estimate the businesses could be worth as much as $10 billion.