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.”
The ETF has a 5.2% weight to Mallinckrodt (NYSE: 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 (NYSE: WWAV) has been on the receiving end of takeover speculation in the wake of General Mills’ (NYSE: GIS) deal to buy Annie’s (NYSE: 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
