My column last week concerning “secret indexes” was so wildly popular that I’m happy to reveal five more today.
Reason being, the benchmark indexes don’t paint a clear enough picture to make informed investment decisions.
Now, is it a bit neurotic for my team to track the performance of hundreds of hidden indexes?
No! The clues these indexes yield are too juicy to ever risk missing…
Clear Spinoff Index (^CLRSO)
Since they’re offshoots of existing firms, many investors consider spinoffs to be second-rate versions of the original companies. Spinoffs also carry inherent risk, since they’re wading into stock market waters on their own.
There also tends to be speculation about why they’re being spun off from the original companies in the first place. Are they no longer relevant to the businesses? Are they underperforming and dragging down the parent companies?
Sometimes, this is true.
History shows that while spinoffs may be unloved and underappreciated, they can pack a punch, too.
Take Chipotle (CMG), for example.
You may not know it, but Chipotle was once owned by McDonald’s (MCD). However, McDonald’s ditched it because it thought Chipotle’s burrito business didn’t fit its model. More importantly, it didn’t think Chipotle would be that profitable.
- Chipotle’s five-year average annual sales growth rate is a robust 19.2%.
- Over the past 12 months alone, Chipotle has raked in almost $4 billion in sales.
- And its most recent quarterly earnings shot up by 57%. Year to date, net income is up 17.8% over the same period in 2013.
This is no fluke. Studies have shown that spinoffs can actually outperform their parent companies.
And there’s an index that follows their performance – the Clear Spinoff Index.
You can gain easy exposure to the Index through the ETF that tracks it – the Guggenheim Spinoff ETF (CSD). It holds 34 securities with an average $12.5-billion market cap, and is up 26.5% over the past three years.
The Cannabis Index (^CANNABIS)
Marijuana stocks have experienced radical swings this year.
Take GW Pharmaceuticals (GWPH), for instance. Its cannabis-based multiple sclerosis drug, Sativex, is currently used in Europe and is undergoing trials for use in the United States. Shares blasted from $41.54 at the beginning of the year to as high as $107.29 in June. That’s a 158% bounce!
And while the stock currently rests around $76 today, it’s tough to ignore the industry’s potential.
The legal marijuana market is estimated to grow 60% this year – or more than $2.5 billion in revenue. You can expect that number to grow even more from here, too, once even more restrictions are relaxed across the country.
Even Warren Buffett seems to be on board.
A Bloomberg News report from Thursday mentioned that Cubic Designs, a subsidiary of Berkshire Hathaway (BRK.A), has taken steps to profit from the expansion in the legalized marijuana industry.
For an easy way to track this continued growth, The CANNABIS Index is a new index that reflects the increased demand in the marijuana industry by tracking the market’s top leaders.
Dow Jones U.S. Toys Index (^DJUSTY)
‘Tis the season for…
Of the holiday season’s many staples, toys are right up there with turkeys and trees.
The U.S. toy industry rakes in $22 billion in sales per year, according to the Toy Industry Association. And you can expect toy commercials to litter your television over the next few weeks, as toy companies battle for the top-selling gifts in this fiercely competitive industry.
To track this seasonal trend, take a look at the Dow Jones U.S. Toys Index.
Russell 2000 Defensive Index (^RU2000DF)
When it comes to finances, everybody likes a little stability. In fact, the market volatility over the past few months is enough to make anyone nervous. So if you’re looking for some safety – or would like to diversify your portfolio – then the Russell 2000 Defensive Index might be just what you need.
Reconstituted annually, the Index measures companies based on their stability (taking into account volatility, leverage, and return on assets). Its holdings are less sensitive to market volatility and economic cycles than most other stocks, and its top sectors by weight include financial services, producer durables, and consumer discretionary companies.
Sustainability Food Index (^SUFIXPD)
In recent years, governments and investors alike have taken an interest in greater sustainability of our resources.
As a growing global population has put extreme pressure on our food supply and heightened the importance of finding sustainable solutions, a number of sustainability indexes have popped up in the investing world – including the Sustainability Food Index.
This Index tracks global stocks that are sustainable leaders in food and are active in organic and natural products, as well as water. Given the importance of these companies, it’s not surprising that SUFIXPD is up substantially since its inception at the beginning of 2004. In fact, it’s outperformed the S&P 500 by 44.4% over that time period.
With the importance of sustainable food only going to grow, this Index could likely have a strong run for quite some time.
Onward and Upward,
Founder, Wall Street Daily