S&P Dow Jones Indices (S&P DJI) has announced the launch of three event-driven indices: the S&P U.S. Spin-Off Index, the S&P US IPO and Spin-Off Index and the S&P US Activist Interest Index.

Vinit Srivastava, Senior Director of Strategy Indices at S&P DJI.

The level of activity in spin-offs and initial public offerings (IPOs) has accelerated in recent years as companies seek to unlock the value within their organisations against the backdrop of healthy equity market valuations. Activist investors have played an integral role in this, exerting pressure on companies who are less willing to follow such strategies. Carl Icahn’s successful campaign to encourage eBay to spin-off PayPal is a prime example.

Creating a new publicly traded company through either the sale of part of an existing business (spin-off), or through publicly listing a privately-held company (IPO) can result in value creation for the company and outperformance for the shares.

In the case of IPOs, the revenue from selling shares provides much needed capital for growing the business. The company should also be better governed, a product of increased investor scrutiny and the transparency requirements of publicly-listed companies. Spin-off companies should become more focused businesses with management dedicated to the the core operations. Investors can also value the company as a stand-alone business, avoiding the discount which is often applied when valuing less focused conglomerates.

“Historically, spin-offs, IPOs and firms targeted by activist investors have generally outperformed the broad market as they uncover value and increase efficiencies. These three new indices, in addition to our existing S&P Merger Arbitrage Index, provide investors sophisticated and transparent benchmarks that reflect how these significant events impact a company’s performance,” said Vinit Srivastava, Senior Director of Strategy Indices at S&P DJI.

The new indices, all of which are derived from the S&P US Broad Market Index (BMI), provide a means of tracking the performance of US companies engaged in spin-offs, IPOs and activist activity. The systematic nature of their methodologies means they could easily form the basis for investment products such as exchange-traded funds (ETFs).

The spin-off index is designed to measure the performance of US companies that have been spun-off from a parent company within the last four years. The combined IPO and spin-off index calculates the performance of US companies that have had their IPOs or been spun-off from a parent company within the last five years. While the activist interest index measures the performance of companies that have been targeted by activist investors within the last 24 months, as determined from SEC Form 13D filings . The index is equal-weighted index, with companies remaining in the index for a maximum of 24 months.