you first need to create an index upon which the product can be based and which supplies the intellectual property of how the ETF will buy and sell shares. In the case of the Guggenheim Spin-Off ETF, the product is based on the Beacon Spin-Off Index. So what does this do?
The Beacon Index selects shares of companies that have been spun off from larger parent companies, not longer than 30 months prior, nor as recently as six months to the date index rebalancing takes place. While there are no limits on the size of company that can be included, the index primarily focuses on companies in the small- and mid-cap space. In the context of the US market, that’s companies with a market capitalisation of less than $10bn.
To define a spin-off: think of the recent announcement by BHP Billiton to spin off some of its non-core assets into a newly formed company which will be called South32. South32 will be listed on a couple of exchanges, including the JSE. Shareholders in BHP Billiton will receive shares in the new entity that they can do with as they please. South32 is a classic example of the type of company the Guggenheim ETF would seek to include, by buying the shares of South32 when it eventually lists.