The Skinny on Spinoff Funds
Your choices are few if you want to invest in spinoffs through a fund. The purest play is Guggenheim Spin-Off ETF (symbol CSD), an exchange-traded fund that tracks an index of about 40 companies disgorged within the past 30 months. Fund tracker Morningstar calls the ETF a mid-cap fund, but in truth it invests in companies of all sizes, with a tilt toward smaller firms (58% of assets at last report). Among its best-known holdings are Philip Morris International, Time Warner Cable and AOL.
The ETF has performed impressively since the end of the last bear market. It earned 65% in 2009 and nearly 4% in 2011, a rough year for stocks. But its five-year return—an annualized 0.5% through May 4—still suffers the effects of a disastrous 55% loss in 2008. The annual expense ratio is 0.65%—high for an ETF.
Keeley Asset Management runs several mutual funds that specialize in “companies in transition,” including those restructuring through asset sales and spinoffs. Keeley All Cap Value Fund A (KACVX)—which invests, as its name suggests, in companies of all sizes—holds shares of Kraft, Covidien, Williams Cos. (which just spun off WPX Energy) and Pfizer, which is weighing a plan to divest its animal-health unit.
As is the case with the Guggenheim ETF, the Keeley fund’s five-year record, an annualized loss of 0.9%, has been dragged down by a big loss (49%) in 2008. That trails Standard & Poor’s 500-stock index by an average of 1.2 percentage points per year.
The Keeley fund’s biggest shortcoming is that it charges a 4.5% front-end commission. If you can buy the fund without paying the load, or if you qualify for the no-load, institutional class (KACIX), it’s a reasonable choice. If you can’t avoid the load, take a pass.