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Spin-Off ETF Looks to Get Back to Old Ways


By its previously set standards of excellence, the Guggenheim Spin-Off ETF (CSD) is having a sluggish year with a gain of 4.6%, one that lags the S&P 500.

While past performance is never an indicator of future returns, it cannot be ignored that the focused CSD has a legacy of out-performance over the broader market, having thumped the S&P 500 every year since 2009, and usually by wide margins. [Spin-Off ETF Keeps Soaring]

Part of the recipe for CSD’s success has been heavier allocations to mid- and small-cap stocks, groups that have worked in significant fashion since the 2009 market bottom. However, it is CSD’s small-cap and consumer discretionary exposure that has hampered the ETF a bit this year. [Spin-Off Still Impressive]

But groups that earlier this year were thorns in the side of CSD are perking up. Since the start of the third quarter, the iShares Russell 2000 ETF (IWM) has jumped 5.3%. The Consumer Discretionary Select Sector SPDR (XLY) is showing strength of its own, up 4.4%. Only two ETFs have added more new assets this quarter than XLY.

“ CSD’s exposure to smaller cap stocks means that it will tend to outperform the S&P while the market is rallying and underperform during downturns. As such, during this part of the market cycle I would tend to reduce exposure to smaller cap stocks and funds. At this time, I would still recommend CSD as a smaller satellite holding due to its longer term outperformance, with a target of purchasing a full position during the next market pullback,” writes Thomas Kennedy on Seeking Alpha.

CSD has some hidden potential catalysts that could jolt the ETF higher into year-end, though the emphasis needs to be on “potential.”

The ETF has a 5.2% weight to Mallinckrodt (MNK). Not only has the Ireland-based specialty pharma maker spent time as one of the most heavily shorted stocks this year, giving it exposure to the potential of a short-covering rally, but hedge funds are also stepping into Mallinckrodt from the long side.

Additionally, CSD’s second-largest holding with a weight of almost 5.3%, WhiteWave Foods (WWAV) has been on the receiving end of takeover speculation in the wake of General Mills’ (GIS) deal to buy Annie’s (BNNY) announced earlier this week.

Including Mallinckrodt, CSD’s total health care weight at the end of the second quarter was 14.3%, not a bad trait when that sector is the top performer in the S&P 500 this year.

Guggenheim Spin-Off ETF