Can’t get that here: An ETF with stock-splitting performance

Can’t get that here: An ETF with stock-splitting performance

Can’t get that here: An ETF with stock-splitting performance WP’s weekly look at products and/or services available in other parts of the world uncovers an ETF using a simple, yet effective methodology for picking stocks that handily outperforms the S&P 500.

Just four months old, the Stock Split Index Fund trades on NYSE Arca under the symbol “TOFR.” While it doesn’t have performance numbers available just yet, the index on which it’s based has been around since 1997, beating the S&P 500 in 14 of 18 of those years.

Rather than paraphrase what the index’s methodology is all about, here’s what the investment advisor for the fund, USCF Advisers LLC, has to say on the subject:

“The 2 for 1 Index contains approximately 30 companies which trade on major U.S. stock exchanges. Companies eligible for inclusion in the index have all announced a 2 for 1 (or higher) stock split within the 6 months prior to selection for the index. Each month, the 2 for 1 Index is updated on the Friday closest to the 15th of that month. The pool of eligible companies is evaluated and ranked according to a proprietary methodology, and the top ranked choice is selected for the Index. One new stock is added to the Index, and the oldest stock is removed. All positions are rebalanced to equal weight.”
 
The key to the index: each stock is held for 30 months and then sold.
 
Utilizing research by David Ikenberry, dean of the Leeds School of Business at the University of Colorado Boulder, which evaluated the performance of stocks that had split 2 for 1 or higher compared to those that hadn’t, Neil Macneale hit on the idea of creating a newsletter based on this research.
 
And so in 1996 the 2 for 1 newsletter was born which in turn resulted in the creation of the 2 for 1 index in 2014.  
 
Why 2 for 1 or higher? That’s what Ikenberry originally studied. As for 30 stocks, Ikenberry’s research found that the “stock split advantage” dissipates after three years. Macneale could have chosen 36 stocks over 36 months but ultimately decided exiting a position at 30 months made more sense.
 
It’s hard to argue with his decision given its performance.   
 
WP hopes to talk with Macneale in the future about creating a Canadian version of the 2 for 1 newsletter. In the meantime advisors will have to make do with the U.S.-listed ETF, which in a tip to Canada, includes TD Bank amongst its 30 holdings.