Index Choice Is Key For Spinoff ETFs

April 29, 2016

Out of the funds we classify as "Alpha-Seeking ETFs" here at, the Guggenheim Spin-Off ETF (CSD | D-51) was one of a kind, until recently. Launched nearly 9 1/2 years ago, CSD was the only ETF focused on spinoffs until the Market Vectors Global Spin-Off ETF (SPUN) came to market last year.

Still, CSD remains the leader in the space, with $238 million in assets compared with a mere $2.8 million for SPUN.

We'll soon find out whether there's room for two spinoff products in the crowded ETF field. While CSD's asset base is respectable, the spinoff strategy has yet to catch on with investors.

Should investors be taking a closer look at CSD and SPUN?

Performance Lags S&P 500, Beats Russell 2000

The thesis behind these ETFs is that a spun-off company is likely to create value by becoming more focused on its core business following the split from its parent.

Within a conglomerate, the individual business was just one of many, but following the spinoff, it is the focus―at least that's the theory.

The reality for CSD is near-identical performance to the S&P 500. In the period since its inception on Dec. 15, 2006, the fund is up 74.6%, compared with a return of 76.9% for the SPDR S&P 500 ETF (SPY | A-98).

On the other hand, CSD has outperformed the 62.9% return for the iShares Russell 2000 ETF (IWM | A-91), which some may argue is the more appropriate benchmark for a fund filled with smaller-cap companies.

Returns For CSD, SPY, IWM Since Dec. 15, 2006

Meanwhile, SPUN has only been around since June 10 of last year. Since then, it is down 8.6%, below the 0.6% return for SPY, similar to the 9.4% decline for IWM and better than CSD's 15.1% loss in that period.

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