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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some spin-off stocks to your portfolio, the Guggenheim Spin-Off ETF (NYSEMKT: CSD  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously. It tracks an index focused on stocks that have been spun off within the last 30 months or so.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is 0.65%. The fund is fairly small, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed well, beating the S&P 500 handily over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why spin-offs?
Some folks find spun-off companies particularly intriguing because they may not yet have their value fully realized in the market, in part because some investors are still getting to know and understand them. As with IPOs, some spin-offs have experienced big run-ups in price following their separation from their parent. This isn't true of all spin-offs, though, which is why buying a basket of them in ETF form like this can make sense.

More than a handful of spun-off companies had strong performances over the past year (and some of them have conducted spin-offs of their own already or are planning to). Marathon Petroleum (NYSE: MPC  ) , spun off from Marathon Oil, is up 98% so far this year. It's among the refiners benefiting from global demand and boosting capacity. It also spun off its midstream business into MPLX, which will focus the Utica, Marcellus, and Illinois Basin shale plays.

Phillips 66 (NYSE: PSX  ) , spun off from ConocoPhillips, soared 67% and has been profiting by processing cheap U.S. oil and then selling it at higher prices in Latin America and Europe. It's also processing far more domestic crude than before and relying less on OPEC oil. Its management recently signaled confidence via a dividend hike of about 25% -- its yield is 2.1% now. The company has also been investing in railcars, as railroad transport makes economic sense. Meanwhile, Phillips is spinning off a master limited partnership.

Real estate developer Howard Hughes (NYSE: HHC  ) , spun off from the General Growth Properties REIT, gained 40%. It features diverse operations, developing master planned communities in Texas and reworking the South Street Seaport in Manhattan and a promising property in Hawaii, among other projects. Management has explained that it's shifting its focus some, from design and planning to vertical construction.

Genie Energy (NYSE: GNE  ) , spun off from IDT, advanced 31%. Last month, its earnings report featured double-digit gains in revenue for both the fourth quarter and all of 2012. Net income fell over the whole year but was up in the fourth quarter. Genie was also granted an exclusive exploration license from Israel for about 400 square acres in the Golan Heights, and it's beginning shale-field work in Colorado.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

There are many different ways to play the energy sector, and The Motley Fool's analysts have uncovered an under-the-radar company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations, and poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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10/8/2015 2:01 PM
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