Over the past 15 years, CSD has bested the SPY eight times. It has posted returns of -12.54% year-to-date as of Friday, compared to the -13.26% results for SPY. Since the Covid trough on March 13, 2020, through now, the fund has returned 26.49% on an annualized basis as compared to the 19.57% returns for SPY.
The Invesco S&P Spin-Off ETF, founded in 2006, was brought into the Invesco fold with the acquisition of Guggenheim's exchange-traded fund business in 2018, with Guggenheim picking up the fund with the acquisition of Claymore. The fund sports a 65-basis point expense ratio, so a shareholder with $1,000 invested over a calendar year would pay $6.50 in fees over that period. CSD is also a passive strategy and tracks the S&P U.S. Spin-Off Index. As you can tell, the strategy focuses on spin-offs, and at a high level that sounds almost too simplistic, but there are some nuances to the approach. These details are best understood by reviewing the index methodology guide.
The first thing I noticed in the guide is the publishing date is March 2022, which usually means there was a recent change made to the methodology, but in reviewing the index changes appendix, the last change was in November 2020. The date had instead to do with making the weighting methodology more flexible. This index seems to have gone live (started real-time calculation) in 2015, and replaced what was then called the Beacon Spin-Off Index.
This index is rebalanced monthly, meaning any spin-off that occurs in a calendar month is eligible for inclusion at the end of the month. Spin-offs must have a market cap of at least $1 billion to make it into the index. Positions are capped at 7.50% and the sum of positions with weights greater than 4.50% cannot exceed 45%. The methodology states that constituents are held in the index for no more than 48 months. S&P, or predecessor index provider Beacon, undoubtedly ran any number of curve fitting exercises to arrive at 48 months as the sweet spot to hold spin-offs, but I was unable to find any studies from either group on this.
As you can tell from the below table, CSD is a fairly small fund. Looking through its history, its assets under management seem to have peaked at just over $700 million in 2013, when it returned over 50% as compared to the roughly 30% returns of SPY.
The last 5 years have seen the fund underperform SPY and investors' appetite for the fund has waned accordingly. Given the year-to-date performance, and the pandemic trough returns, I'm not sure investors should write this fund off entirely. As we begin to work through and exit this current economic trough, my take is that the spin-offs we will be seeing for a while will be of those profitable parts of companies currently carrying some baggage. In other words, put this fund on your watchlist and keep an eye on it.