The Spin-Off ETF Spins To New Highs


Prior to 2014, the Guggenheim S&P Spin-Off ETF CSD had a nice annual winning streak going against the S&P 500. In 2016, the spin-off ETF snapped a two-year losing streak against the benchmark U.S. equity and CSD appears poised to add to that run this year.

Year-to-date, the king among spin-off ETFs is up 14.5 percent compared to a gain of just under 12 percent for the S&P 500. CSD hit a record high on Tuesday.

CSD, which tracks the S&P U.S. Spin-Off Index, “offers exposure to U.S. domiciled companies that have been spun-off from a parent company within the last four years and have a float-adjusted market capitalization of at least $1 billion,” according to Guggenheim.

What Makes CSD Tick

On a historical basis, energy spin-offs have been some of the worst-performing spin-offs while healthcare separations have been among the best. Fortunately, at a time when the energy sector is also the worst-performing sector in the U.S., CSD is hardly allocated to that group. CSD's energy weight is just 0.12 percent, easily the ETF's smallest sector allocation.

CSD's healthcare allocation is also light at just over 3 percent. However, the ETF devotes nearly half its weight to the technology and consumer discretionary sectors. Not only are those sectors performing well this year, but they've turned out some solid spin-offs over time.

CSD is a top heavy ETF as its top four holdings combine for about 30 percent of the fund's weight. That quartet includes PayPal Holdings Inc PYPL and Hewlett Packard Enterprise Co HPE.

Important Notes

Many spin-offs start off as small- or mid-cap stocks, meaning the size factor enters into some of CSD's potential to outperform traditional benchmark. That can also mean higher volatility, which the ETF has displayed relative to the S&P 500 over the past several years.

At the end of the second quarter, CSD's 61 components had an average market value of $16.1 billion, putting the ETF on the smaller end of the large-cap spectrum.

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