I think I'm in love. If I were 30 years old again I might ask the Claymore/Clear Spinoff ETF to marry me. ETFs are no longer the run of the mill, lets-buy-every-stock,, variety like SPY (the S&P 500 ETF) or QQQQ (the Nasdaq 100 ETF). The latest exchange traded funds to be released to the public have upped the ante a notch and are now playing for bigger stakes. They want to enter the arena of the discretionary allocations that big pension funds give to mutual funds and hedge funds. They want to be players. However, I think we can take at these ETFs and pick and choose from their holdings which stocks we like best. One way to do that is to see the hedge funds, mutual funds, and other investors that are accumulating each stock in the ETF.
One recent entrant which has been the source of my stock idea lust has been the spinoff ETF. Spinoffs are companies that are subsidiaries or used to be subsidiaries of other public companies. They get spun out to the public through an IPO and often there is artificial selling pressure. This was famously pointed out in super investor Joel Greenblatt's book "You Can Be a Stock Market Genius". He stated the selling pressure could come because people who wanted to hold the parent company (for instance, an ETF that follows an index) might not be allowed to hold the spinoff stock (because the spinoff is not part of the index the ETF is following) so they are forced to sell off the shares. Although its not the topic of this article, and I plan to cover it at a future point, here are Joel Greenblatt's top holdings.
When there is this artificial selling on a spinoff, it creates a buying opportunity. The Spinoff index is created by filtering through the buying opportunbities and using a rules-driven approach to find the highest ranking spinoffs, ranked by growth prospects, cash flows, and other factors. They rebalance the index semi-annually.
An example holding includes EXPE, Expedia. This online travel company was spun out of Interactive Corp, IACI, Barry Diller's Internet conglomerate, in July of 2005. Since then its fallen 15%. However, at this point the company has become cheap and can potentially even be a takeover candidate. It has a $7BB market cap but $450mm in net cash. Its EBITDA (cash flows) is $738mm over the past year. That means its trading at only 8.8 times cash flows. Analysts expect 5% growth in revenues and about 10% growth in earnings so those cash flows are sticking.
But whats amazing is the investors who have been accumulating the stock. Interestingly, of the 15,000 or so portfolios in Stockpickr, not that many do-it-yourself portfolios have entered EXPE (and here is Expedia's page so you can see what funds own it that we track. But four of the best pro investors we follow have been buying the stock.
First off, Bill Miller of Legg Mason owns the stock. Miller wants revenge this year since 2006 was the first in 15 years that he did not beat the S&P.
Second, I'm a big fan of hedge fund, Okumus Capital. They are a deep value fund up about 20%+ per year and Ahmet Okumus was profiled in Jack Schwager's book, "Stock Market Wizards". And finally, two quality value-oriented mutual funds: The Weitz Funds, and the Columbia Acorn Fund, own the stock.
I like the stock here and think it can see $28-30 by year-end.
To see the other 39 holdings of the Spinoff ETF (including a few that several activists seem to be accumulating, such as LEV and others) and to see at a glance what funds have been the latest accumulators of each position , please check out the Stockpickr page for it. Also, since the ETF is rebalanced semi-annually, you can get notified of when the rebalancing occurs by bookmarking the ETF within Stockpickr. The way you bookmark it is by rating it with four stars.
