By its previously set standards of excellence, the Guggenheim Spin-Off ETF (NYSEArca: 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 (NYSEArca: IWM) has jumped 5.3%. The Consumer Discretionary Select Sector SPDR (NYSEArca: 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.”

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