Make Money in Brokerages the Easy Way

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the brokerage and money management industries to prosper as our global economies and stock markets eventually pick up, the iShares Dow Jones US Broker-Dealers ETF (NYSE: IAI  ) 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.

The basics
Good ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.

This ETF has not delivered the most impressive performance so far, but it's also very young, with just a few years on the books. It underperformed the S&P 500, on average, over the past three and five years, but these have been years in which the stock market has stalled or sputtered. If you expect the stock market to heat up, brokerages and financial services companies will likely see business improve significantly.

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.

With a low turnover rate of 32%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several broker-dealer stocks performed strongly over the past year. Fixed-income trading platform provider MarketAxess  (Nasdaq: MKTX  ) surged 50% over the year, but much of that was due not to operational outperformance, but to speculation that the company might be sold, fetching a premium price. Of course, now that the stock has advanced this far, much of any premium may already be baked into its price. And rumors of sellouts don't always prove true, as well.

Other companies didn't do as well but could improve in the years to come. E*TRADE Financial (Nasdaq: ETFC  ) shed 52%, dropping more than 10% in a single day after reporting disappointing earnings due largely to loan loss damage. Some expected the company to put itself on the block, but it decided against that. Investment Technology Group (NYSE: ITG  ) fell by 40%, due in large part to weak institutional trading. It also announced layoffs and reported disappointing earnings.

BGC Partners (Nasdaq: BGCP  ) , down 14%, is one of my colleague Matt Koppenheffer's "5 Hidden Stocks to Save Your Portfolio." You might like it just for its dividend yield above 10% (yes, you read that right), but its CEO has also argued that its small size has kept it from getting into some of the questionable practices that have crushed bigger rivals' stock prices.

The big picture
Demand for brokerages and financial services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Remember, too, that even if you don't want to invest in some strong brokerages, you can invest through a great brokerage. Learn more about how to choose the best one for you in our nifty Broker Center.

Longtime Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio. You can follow Selena on Twitter @SelenaMaranjian. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1772922, ~/Articles/ArticleHandler.aspx, 10/22/2016 3:28:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
BGCP $8.91 Up +0.03 +0.34%
BGC Partners CAPS Rating: *****
ETFC $29.50 Up +1.30 +4.61%
E*TRADE Financial… CAPS Rating: ***
ITG $16.50 Up +0.17 +1.04%
Investment Technol… CAPS Rating: ***
MKTX $152.22 Up +0.82 +0.54%
MarketAxess Holdin… CAPS Rating: ****