By its lofty historical standards, the Guggenheim Spin-Off ETF (NYSEArca: CSD) had a disappointing 2014. The ETF returned just 1.1% last year while the S&P 500 jumped 13.5%.
Last year was the second time since 2008 that CSD has trailed the benchmark U.S. index and when CSD beats the broader market, it usually does so by wide margins. For example, the ETF rose 52.1% last year while the S&P 500 gained 32.3%. In 2012, CSD surged 26.4% compared to a 16% gain for the S&P 500. [A Rough Year for the Spin-Off ETF]
Investors pulled $194.7 million from CSD (the ETF now has $507.1 million in assets under management), but those departure could prove hasty if some additions to the ETF become leading stocks in 2015.
CSD tracks the Beacon Spin-off Index, which “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.
During its annual rebalance last month, CSD removed eight stocks, paring the ETF’s energy sector exposure in the process. The ETF’s departures included TripAdvisor (NasdaqGS: TRIP), WPX Energy (NYSE: WPX) and Phillips 66 (NYSE: PSX).
Fourteen stocks were added to CSD, including Navient (NasdaqGS: NAVI), One Gas (NYSE: OGS), Knowles (NYSE: KN), Lands’ End (NYSE: LE), Theravance Biopharma (NasdaqGS: TBPH) and Care Trust REIT (NasdaqGS: CTRE).
As is the case with any equity-based ETF, CSD’s sector weights are important, but even more so when studying which sectors have a tendency to turn out the best and worst spinoffs. A recent Wall Street Journal article notes the energy sector has a penchant for spinoff duds, but consumer sectors and health care deliver rewarding spinoffs.
Looking ahead to 2015, there is of course a chance CSD will rebound with much of that chance being predicated on the broader market’s whims. CSD’s positive traits include a favorable sector mix, namely a combined 39.3% weight to discretionary and health care stocks. [Spin-Off ETF Looks for Upside]
“CSD is in the top 1% of Morningstar’s mid-cap blend category for the trailing 3- and 5-year periods ended 12/31/2014. The number of U.S. company spin-offs is expected to reach a 30-year high in 2015,” according to Guggenheim.
This year is likely to be an even larger year for spinoffs than 2014. There are already 41 spinoffs planned compared to 36 at the same time in 2014, according to Spin-Off Research.
Guggenheim Spin-Off ETF