Produktpr sentation Solactive Global Spin-Off Index Final ...€¦ · Product presentation –Solactive Global Spin-Off Performance Index ... 2013 Global IPO update, Bloomberg: Mergers

Performance creates trust

Index Certificate on the Solactive Global Spin-Off Performance Index

Adding value to portfolios with

spin-offs

Product presentation – Solactive Global Spin-Off Performance Index Page 2

Contents

� Background – what is a spin-off?

� Investment case – spin-off companies

� Solactive Global Spin-Off Performance Index

� Certificate solution: index certificate

� Risk factors

Product presentation – Solactive Global Spin-Off Performance Index

Product presentation – Solactive Global Spin-Off Performance IndexProduct presentation – Solactive Global Spin-Off Performance Index Page 3

Background – what is a spin-off?

Definition according to Gabler’s business dictionary:

“The hiving off of an organisational unit from an existing corporate

structure by establishing an independent company.”


Product presentation – Solactive Global Spin-Off Performance IndexProduct presentation – Solactive Global Spin-Off Performance Index

IPOs and spin-offs – a comparison

IPO Spin-off

Share tender (from the investor’s

perspective)

Voluntary (investors are actively

sought via the offer price and growth

potential – buying the shares is a “voluntary” decision)

Involuntary (from the start of the first

day of trading, the group of investors

mandatorily comprises the shareholders of the parent company)

Possible reasons for an IPO / spin-off

from the company’s perspective

• Capital requirement

• Company sees itself between “fairly

valued” and “overvalued”

• Focus on core business

• Splits off business areas that are

unprofitable by comparison within the group

• Reduces the conglomerate discount

of the parent company

Market environment As a general rule of thumb: the better

the market trend, the more IPOs are

staged.

Depends on individual market phases

Media reporting / analyst coverage Extensive, once a certain size has been

reached

Initially low to virtually non-existent

Treatment in indices There is often a fast entry rule in place

(the companies are rapidly admitted to

the indices at a premium in the initial days of trading)

Frequently a “fast exit” at the close of

the first day of trading, given that it

no longer fits thematically or is not big enough -> selling pressure

Consequences for investors A lot of speculation in the share price –

significant potential for negative

surprises

Scarcely any speculation in the share

price – significant potential for

positive surprises

Page 4


Possible reasons for a spin-off

Management believes that…

� the business unit is no longer a strategic fit with the parent company.

� the parent company is not appropriately valued owing to the business unit that

is to be spun-off.

Page 5

Where the valuations of the parent company and subsidiary

are concerned, the sum of the individual parts is greater

than the value of the conglomerate.


Contents





� Risk factors


The market environment for mergers & acquisitions is currently very favourable

� Low interest rates, high valuations and improved economic outlook create a good

environment for capital market transactions.

� The number of IPOs rose by 3% worldwide in 2013, while issue volume was up by

some 27%. The US market and Asia have been particularly dynamic.

� Ernst & Young expects a clear increase in the number of IPOs worldwide in 2014.

� Global M&A activity rose by 18% from Q2/13 to Q3/13 and by 36% YoY. The US

accounts for 48% of the global M&A volume.

Sources: Ernst & Young, 2013 Global IPO update, Bloomberg: Mergers & Acquisitions Rankings Q3 2013.


Spin-offs take place in every market phase, and can add value for investors

� There has been a significant increase in the number of spin-offs on the US

market alone over the past few years.

� Spin-Off Advisors LLC – an independent research firm – puts the market volume

of the 37 US spin-offs in 2012 at USD 187 billion.

� Spin-offs allow investors to profit from a possible rise in the share prices of

both the parent and the new company.

Page 8

Spin-offs often post better share price performance than their

parent companies.

Source: www.spinoffadvisors.com


Performance of selected spin-offs since 2011 vs their parent companies

Page 9

Source: Bloomberg; as at 30.12.2013

56.08%

24.73%

194.72%

68.81%

197.41%

157.45%

71.83%

27.84% 25.17%37.42%

127.03%

33.94%

0.00%

50.00%

100.00%

150.00%

200.00%

Share price gains of subsidiaries (left) and their parents (right) in % – since spin-off


The spin-off effect

� At the start of their independence, spin-offs initially appear “orphaned”.

They are not in investors’ sights.

� Analyst coverage is not yet available.

� Professional investors, such as pension funds, may be forced by their

investment regulations to sell the stock.

� The shares in the newly created subsidiary will not necessarily be listed in

the same index as their parent. This leads to index funds selling the spin-off’s shares.

Page 10

The share price of a spin-off company typically comes under

pressure in the first week of trading.


Independent academic research shows that…

� … the business areas hived off – the spin-offs – have outperformed the market

over the past three and a half decades

� … spin-offs deliver positive and economically significant excess returns in their first year of trading

� … on an annualised basis, the excess returns are greatest in the first 12months of trading

� … the prevailing belief in the media that the best strategy is to buy spin-offs only after the first six months of trading can be disproved.

Page 11

Source: McConnell/Ovtchinnikov (2004), Predictability of Long-Term Spin-off Returns


� Spin-offs show weakness in the first five trading days and underperform

the market as a whole.

� Long-term comparisons show that spin-offs reach break-even after around

30 days

Spin-offs show regularity in performance after launch

Source: Credit Suisse, Do Spin-Offs Create or Destroy Value?, Quantitative Research, 06.09.2012


In long-term comparisons, spin-offs outperform their parent companies

� After initial weakness, investments in spin-offs show remarkable upside

potential.

Page 13

Source: Credit Suisse, Do Spin-Offs Create or Destroy Value?, Quantitative Research, 06.09.2012


Contents





� Risk factors


Allocation of roles:Solactive Global Spin-Off Performance Index

� The Solactive Global Spin-Off Performance Index is an index provided and

calculated by Solactive AG.

� The index is calculated on the basis of the share prices of the individual index

members. The last known prices are used.

� A specially set-up Index Committee, comprising employees of Solactive AG,

monitors the composition of the index.

� Company selection

� Calculation of the index

price

� Issuance

� Market making

Solactive AG Bank Vontobel


The Solactive Global Spin-Off Performance Index

Page 16

You want We offer

� to invest in the “spin-offs”

investment theme

� to profit from possible above-

average share price gains

� to be continually invested in the

latest spin-offs at the right time

� to avoid the spin-off effect.

� a spin-off performance index

focused on the international

markets

� the 20 most recent spin-offs

worldwide brought together in a

dynamic index

� a systematic and transparent

index, unique in the world

� investment opportunities for

private investors in themes that

can be difficult to access.


� Market capitalisation of at least

EUR 750 million

� Average daily trading volume of

at least EUR 2 million

� The spin-off must have been

listed on the stock exchange

for at least 30 days.

� Unlimited trading for foreign investors.

Composition and selection criteria

� Equally weighted index from a

global equity universe.

� Comprising 20 members with the

most recent spin-off ex dates (as

a rule, the first trading day).

� Quarterly adjustment of members.

� Distributions made by the index

members are reinvested.

Composition Selection criteria


Contents





� Risk factors


Solactive Global Spin-Off Performance Index Index members

Page 19

Source: Bloomberg, Structured Solutions; as at 30.12.2013

Company Sector Country First trading day Parent company

AbbVie Inc. Health care USA 10.12.2012 Abbott Laboratories

Altisource Residential Corp. Financials USA 13.12.2012 Altisource Portfolio Solutions

Caverion OYJ Consumer discretionary Finland 01.07.2013 YIT OYJ

CST Brands Inc. Consumer discretionary USA 17.04.2013 Valero Energy Corp.

Fiesta Restaurant Group Consumer discretionary USA 26.04.2012 Carrols Restaurant Group

Hankook Tire Co. Ltd. Automotive South Korea 04.10.2012 Hankook Tire Worldwide

Kraft Foods Group Inc. Consumer products USA 02.10.2012 Mondelez International

Liberty Media Corp. Class A Communications USA 10.01.2013 Liberty Spinco

Liberty Ventures Consumer discretionary USA 10.08.2012 Liberty Interactive Corp.

Mallinckrodt Plc. Health care Ireland 17.06.2013 Covidien

Murphy USA Inc. Energy USA 19.08.2013 Murphy Oil Corp.

New Residential Investment Corp. Financials USA 02.05.2013 Newcastle Investment Corp.

News Corporation Class A Communications USA 19.06.2013 21st Century Fox

NHN Entertainment Corp. Technology South Korea 29.08.2013 NHN Corp.

OSRAM Licht AG Industrials Germany 07.08.2013 Siemens AG

Pentair Ltd. Industrials Switzerland 01.10.2012 Tyco International Ltd.

SAIC Inc. Consumer products USA 16.09.2013 Leidos Holdings

The ADT Corp. Consumer discretionary USA 17.09.2012 Tyco International Ltd.

WhiteWave Foods Co. Class A Consumer products USA 25.10.2012 Dean Foods

WORLD DUTY FREE SpA Consumer products Italy 01.10.2013 Autogrill SpA


Solactive Global Spin-Off Performance Index Sector and country allocation

Page 20


Health care

Communications

Consumer discretionary

Financials

Industrials

Technology

Consumer products

Automotive

Energy

USA

South Korea

Finland

Ireland

Germany

Switzerland

Italy


Solactive Global Spin-Off Performance Index Index adjusted quarterly

Page 21


Number of quarterly changes in index mem

bers

Additions and deletions


Solactive Global Spin-Off Performance Index Backtesting: historical simulation

Page 22

in EUR

Source: Bloomberg, Structured Solutions; as at 30.12.2013Past performance and simulations are not a reliable indicator of future performance.


Solactive Global Spin-Off Performance IndexPerformance data

Return p.a. Solactive Global Spin-Off Performance Index MSCI World in EUR

1 year 27.38% 22.20%

3 years 44.78% 32.07%

5 years 241.03% 96.05%

Volatility p.a. Solactive Global Spin-Off Performance Index MSCI World in EUR

1 year 13.07% 10.19%

3 years 15.45% 12.41%

5 years 16.83% 14.35%

Source: Bloomberg, Structured Solutions; as at 30.12.2013Past performance and simulations are not a reliable indicator of future performance.


Product details Solactive Global Spin-Off Performance Index

Investors who want to profit from the upside potential of spin-offs worldwide can participate in the Solactive Global Spin-Off Performance Index simply and transparently using the Vontobel index certificate.

For further information, please visit www.derinet.ch


Contents





� Risk factors


Risk factors

■ The investor bears the market risk. The regularity observed in the share price

performance of spin-offs may change at any time.

■ Issuer risk

■ Currency risk

■ No capital protection


Summary

� Investment hypothesis: where the valuation of the parent company and

subsidiary are concerned, the sum of the individual parts is greater than the

value of the conglomerate.

� Spin-offs often post better share price performance than their parent companies.

� No regional restrictions, international spin-offs taken into account in selecting

the index members.

� Transparent and strictly rule-based index concept.

� Simple market access via an index certificate.

� A cost-effective means of participating in 20 spin-off firms with a single

transaction.


Legal notice

This publication is for information purposes only and does not represent an investment recommendation or advice and contains

neither an offer nor an invitation to make an offer. It does not replace the qualified advice necessary before any purchase decision, in particular as regards all associated risks. The Guidelines for Guaranteeing the Independence of Financial Analyses

of the Swiss Bankers’ Association shall not apply. The legally applicable product documentation (listing prospectus) consists of

the definitive term sheet with the final terms and the issue programme registered with SIX Swiss Exchange. This and the

Special Risks in Securities Trading brochure be obtained free of charge at www.derinet.ch or from Bank Vontobel AG, Financial

Products, CH-8022 Zurich (tel. +41 (0)58 283 78 88). Past results must not be regarded as an indication or guarantee of future performance. Structured products are not regarded as collective capital investments within the meaning of the Federal Act on

Collective Investment Schemes (KAG), and are therefore not subject to the approval or supervision of the Swiss Financial

Market Authority (FINMA). The value of structured products may depend not only on the performance of the underlying asset,

but also on the credit rating of the issuer. The investor is exposed to the risk of default of the issuer/guarantor. This

publication and the financial products outlined therein are not intended for persons subject to a jurisdiction which limits or prohibits the sale of financial products or the dissemination of this publication and/or the information contained therein. All

information is provided without a guarantee.

December 2013

© Bank Vontobel AG. All rights reserved.

https://derinet.vontobel.com/CH/DE/Home

Documents

Produktpr sentation Solactive Global Spin-Off Index Final ...€¦ · Product presentation –Solactive Global Spin-Off Performance Index ... 2013 Global IPO update, Bloomberg: Mergers