Please ensure Javascript is enabled for purposes of website accessibility

Get Your Market-Trouncing Spin-Offs Here

By Selena Maranjian - Apr 16, 2013 at 8:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are some big double-digit gainers in this ETF.

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 (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 (MPC -0.12%), 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 (PSX -1.68%), 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 (HHC -0.62%), 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 (GNE -0.13%), 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Phillips 66 Stock Quote
Phillips 66
$93.92 (-1.68%) $-1.60
The Howard Hughes Corporation Stock Quote
The Howard Hughes Corporation
$86.01 (-0.62%) $0.54
Marathon Petroleum Corporation Stock Quote
Marathon Petroleum Corporation
$96.09 (-0.12%) $0.12
Genie Energy Ltd. Stock Quote
Genie Energy Ltd.
$7.44 (-0.13%) $0.01
Claymore/Beacon Spin-Off ETF Stock Quote
Claymore/Beacon Spin-Off ETF

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.