Yahoo New Spin-Off Plans Puts These ETFs In Focus

Yesterday, global Internet provider Yahoo (YHOO – Analyst Report) scrapped its year-long plan to spin-off its $32 billion stake in the Chinese e-commerce giant Alibaba Group (BABA – Analyst Report). The move came amid shareholder concerns that the transaction will result in a huge tax bill.

Now, the company is evaluating options to spin-off its core Internet business and the Yahoo! Japan stake into a new publicly-traded company. The company’s core business includes advertising, search technology, Yahoo Sports and the Tumblr blogging platform. It has been struggling to gain market share in online and mobile advertising from Alphabet (GOOGL – Analyst Report) and Facebook (FB – Analyst Report).
 
The new spin-off plan could save billions of dollars in taxes, as Yahoo’s core business is valued at lower than the 15% Alibaba stake. While the name of the new company has not been disclosed, the process is expected to take a year or more to complete. Potential buyers of the Yahoo Internet business include Verizon (VZ – Analyst Report), AT&T (T – Analyst Report), Comcast (CMCSA – Analyst Report) and private equity firms that specialize in buying troubled companies (see: all Technology ETFs here).

Following the new spin-off news, shares of YHOO rose 2.8% initially but fell 1.3% at the close on heavy volume of 2.5 times on average. Currently, Yahoo has a Zacks Rank #3 (Hold) with dismal Growth, Value and Momentum Style Scores of F, D and D, respectively. However, the stock falls in a solid industry that has a Zacks Rank in the top 24% at the time of writing.

The news has put the spotlight on spin-off ETFs and tech ETFs with the largest allocation to this web pioneer:  

Spin-Off ETFs

Guggenheim Spin-Off ETF ((CSD – ETF report))

This ETF offers target exposure to the U.S. companies spun off in the past 30 months by tracking the Beacon Spin-off Index. Holding 41 stocks in its basket, the fund has amassed $335.5 million in its asset base while sees moderate volume of around 61,000 shares a day. Expense ratio came in at 0.66%. From a sector look, financials and consumer discretionary take the top two spots with nearly one-fourth share each while healthcare and information technology round off the next two with a double-digit exposure each. The fund has lost 11.7% in the year-to-date timeframe (read: 5 ETFs to Buy and Hold for the Next 5 Years).

Market Vectors Global Spin-Off ETF ((SPUN – ETF report))

This fund debuted in the space six month ago and has accumulated $2.6 million in AUM. It tracks the Horizon Kinetics Global Spin-Off Index, holding 84 spin-off companies that are domiciled and trade in the U.S. or the developed markets of Western Europe and Asia. Consumer discretionary takes the top spot at 26.4% while financials and industrials round off the top three with a double-digit exposure each. The fund charges 55 bps in fees and trades in volume of 3,000 shares per day on average. It has shed nearly 11% so far since inception.