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Spin-Off ETF Shines Bright as Bull Market Ages


The Guggenheim Spin-Off ETF (CSD) will celebrate its eighth anniversary in December 2014, but just two days removed from the fifth anniversary of the March 9, 2009 market bottom, studying CSD’s performance since then is compelling.

Put simply, only three ETFs have beaten CSD’s 415% gain since March 10, 2009, reports Trang Ho for Investor’s Business Daily. Andrew Corn, CEO of E5A Integrated Marketing, created the Beacon Spin-off Index, CSD’s underlying index, in 2006 after his research showed spinoffs outpaced the broader market dating back to 2001, IBD reported.

With its success, CSD dispels at least two notions. First, as proven by CSD, not all spinoffs are unattractive businesses. While some investors are undoubtedly familiar with the concept of a company shedding an underperforming business to “create shareholder value”, CSD proves that spinoffs themselves are often creators of value for investors. [Spin-Off ETF Keeps Surging]

Second, CSD thwarts the notion niche ETFs are mainly, opaque, overly esoteric funds that confound investors with strange concepts. On the contrary, CSD is arguably prosaic in its approach.

Beacon Indexes “defines a spin-off company as any company resulting from either of the following events: a spin-off distribution of stock of a subsidiary company by its parent company to parent company shareholders or equity ‘carve-outs’ or ‘partial initial public offerings’ in which a parent company sells a percentage of the equity of a subsidiary to public shareholders,” according to Guggenheim.

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. At the end of last year, the average market value of CSD’s 34 holdings was just $2.5 billion. However, the ETF’s standard deviation of 14.54% is alarmingly higher than the 12.11% seen on the S&P 500.

Since 2008, the largest difference in volatility between CSD and the S&P occurred last year when the ETF was 520 basis points more volatile than the benchmark U.S. index. However, investors were more than compensated for the added risk as CSD outperformed the S&P 500 by nearly 2,000 basis points. [Unheralded ETFs Hitting New Highs]

In the five-year period ending Dec. 31, 2013, CSD ranked as one of the four best broader market ETFs on three occasions, taking home top honors last year. Dating back to 2008, CSD has only finished a year lower once and lagged the S&P 500 once; both instances occurred in 2008.

In the up years, CSD’s performance advantage over the S&P 500 has not even been close and over the past 36 months, the ETF has offered nearly double the returns of the S&P 500. Entering Tuesday, the ETF was up almost 5% year-to-date and nearly 8% in the past month.

Guggenheim Spin-Off ETF Sector Weights

Table Courtesy: Guggenheim Investments