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 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.
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.
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 Corp (NYSE:MPC), spun off from Marathon Oil Corporation (NYSE:MRO), 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 LP (NYSE:MPLX), which will focus the Utica, Marcellus, and Illinois Basin shale plays.
Phillips 66 (NYSE:PSX), spun off from ConocoPhillips (NYSE:COP), 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 Corp (NYSE:HHC), spun off from the General Growth Properties Inc (NYSE:GGP) 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.