A US ETF Split Surge in Q4 2024: Digging Into the Data and What It Means for Investors

Takeaways

  • Last year’s final quarter featured a record increase in the number of ETF splits

  • Reverse splits dominated, along with a high volume of leveraged and inverse funds splitting

  • Schwab and ProShares were active in managing the share prices of some of its index ETFs

Something unusual came down the chimney late last year. During the holidays and the preceding weeks, there were a slew of splits among US ETFs – the most in the past four years, according to Wall Street Horizon’s data. It’s nothing to be overly worried about if you take an asset-allocation approach to portfolio management, but it underscores key trends in today’s universe of investment options.

In all, there were 55 fund splits, a mix of traditional and reverse. Our team took a closer look at the numbers, and we found that 20 splits were from Schwab’s lineup. Often, issuers will wait until year-end to perform housekeeping activities, including splits, along with distributing dividends and issuing capital gains to shareholders. Index ETF investors generally face a lower risk of the former distribution type, but splits remain common. Of course, a split (be it with a stock, mutual fund, or ETF) is merely a bookkeeping move; it’s like exchanging a dime for two nickels.

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For equities, some research points to potential alpha among shares of companies that announce a traditional, say a “2-for-1" stock split.1 That trend was particularly prevalent in the 1980s and ‘90s, but recent cycles appear to show that stock-split outperformance is less of a trend. According to Goldman Sachs, stock splitters have shown just modestly better returns compared with the overall market when scanning split announcements since 2019, according to a 2024 research note.2

Reverse splits, perhaps a “1-for-10," have still pointed to downside risk possibility in recent years, which makes sense as the corporate event action is usually only done when a stock has underperformed. Studies show that negative abnormal returns have occurred, on average, with reverse-split stocks.3