Spin-Off Investor (https://www.spinoffinvestor.com) publishes the results of its groundbreaking, 15-year research study in the book, “ALPHA FOUND: Understanding Corporate Spin-Offs and How to Trade Them for Maximum Profit.” These results are the foundation and proof for the Spin-Off Investment System™ (the “System”), a proprietary methodology developed by company Co-founders Geoffrey Hossie and Paul Cuatrecasas.
Spin-Off Investor’s research study describes how, over the course of the last few years, three former hedge fund professionals created, designed, back-tested and optimized a proprietary investment system covering US corporate spin-offs occurring from January 1, 2000 to April 30, 2015. Strikingly, the System on a synthetic basis delivered an average annual return of 29.5% versus only 6.0% for the Russell 2000 Total Return Index and 9.0% for the Guggenheim Spin-Off Exchange Traded Fund – and with lower volatility (see Figure 1). The System employs an optimized use of stop-losses and position sizing, as well as leverage to maximize the return-to-risk dynamic. During the 15-year period covered by the research, the maximum gross exposure was 2.0x and the average gross exposure was 0.9x.
“We believe the Spin-Off Investment System™ represents a breakthrough for disciplined individual investors looking to generate long-term investment returns that may significantly exceed the returns achieved by most institutional investors with similar – or even less – risk,” explains Cuatrecasas.
According to their research and that of others, the back-tested annual results of the Spin-Off Investment System™ over the study period are consistently well above all but the most successful professional investment managers and exceed the returns available from over 90% of all mutual funds, hedge funds, exchange-traded funds and CTAs over the same period.
“Over 50 years of peer-reviewed academic and investment banking research have demonstrated the excess returns available, in the aggregate, from investing in a portfolio consisting of corporate spin-offs,” adds Hossie. “However, the challenge to alpha-seeking spin-off investors is to answer what we call the ‘Seven Key Questions’ for successful spin-off investing, such as: ‘Which spin-offs should I buy? Should I buy the parent company, too? How long do I hold the investment?’ Most importantly, we consider what stop-loss and position size to use in the portfolio to optimize the reward/risk equation.”
Hossie and Cuatrecasas have ambitious plans for Spin-Off Investor, including a bi-weekly newsletter covering the investments of the System, as well as launching a real-time Portfolio Update Alert Service available to investors who wish to track the System’s trades. Looking ahead, the duo hopes to expand their research to cover spin-offs worldwide, equity market hedging, and refined security selection parameters to be used by the System.