Equity markets have been enduring a rough patch lately, as fears over a double dip recession have returned. The problems appear to be more than isolated incidents, as weak job growth in the U.S., ongoing credit concerns in Europe, and higher rates in China have all emerged as cause for concern. This comes despite the best efforts of many governments around the world that have racked up huge deficits in an effort to combat the recession but have made little progress in bringing down double-digit unemployment levels. These realities have led many investors to search beyond the beaten path for investment options that approach equity markets in more creative ways than well-known indexes such as the S&P 500. Within the ETF universe, there are a number of ETFs utilizing unique investment strategies in an attempt to deliver a preferred alternative to traditional equity market exposure [also read Four Alpha-Seeking ETFs Crushing SPY].
Most of these quantitative ETFs have suffered along with the broader markets this year; at time of writing, only a few ETFs in the Quantitative Methodology Indexes ETFdb Category were in positive territory on the year. One of those is the Claymore/Beacon Spin-Off Fund (CSD), which is currently up about 2% in 2010. That performance isn’t all that impressive on an absolute basis, but looks pretty good in comparison to other funds such as the broad-based SPY which is down more than 3% year-to-date. Below, we explore this fund in a more detail to come up with a reason for the outperformance [for more on CSD see Spin-Off ETF Under The Microscope].
CSD In Focus
CSD Tracks the Beacon Spin-Off Index, a benchmark constructed from a broad universe of U.S.-traded stocks, ADRs, and master limited partnerships. Companies eligible for inclusion include those that have been spun-off within the past two years (but not more recently than six months prior to the applicable rebalancing date). There are no limits on market capitalization, but given the foregoing requirement, components tend to be primarily small- and mid-cap companies with capitalizations under $10.0 billion.
Currently, the fund holds 30 securities with just under 93% going to U.S. firms and the rest towards Mexico and Canada. Currently, CSD is heavy in consumer goods (27.3%), business services (12%), and computer hardware firms (10%), with minimal allocations towards consumer services, industrial materials, and utility firms. In terms of individual holdings, VMware (7.3%), Dr. Pepper Snapple Group (6%), and Wabco Holdings (5.5%) make up some of the top allocations. The fund charges an expense ratio of 0.60% and is up more than 40% over the past 52 weeks [see more information on CSD's fact sheet].
Disclosure: No positions at time of writing.