Simple spinoff-buying strategy trounces the market

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A favorite market-beating strategy by activist hedge funds is buying stocks that spin off from large companies.

S&P launched a spinoff index earlier this week and the historical performance is stunning. The S&P U.S. Spin-Off Index is up 18 percent in the past year, 25 percent annualized in the past three years and 24 percent annualized in the past five years. This compares to the S&P 500 at up 10 percent, 17 percent and 16 percent, respectively, according to the S&P website.