Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the steel industry to thrive as the global economy eventually starts cooking again, the Market Vectors Steel ETF (NYSE: SLX ) 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 several dozen of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The steel ETF's expense ratio -- its annual fee -- is a fairly reasonable 0.55%.
This ETF doesn't have a stellar performance record, but it's also very young, with just four full years on the books. Its performance is largely tied to our recent recession, which has put a damper on construction and infrastructure work and led to huge volatility. 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 13%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Cliffs Natural Resources (NYSE: CLF ) , miner of iron ore and metallurgical coal, advanced some 74%. It has shown strength serving developing nations' demand for steel, but some worry now about whether the Chinese gravy train might be slowing down, although for now, global steel demand is still rising.
Brazil-based iron ore giant Vale (Nasdaq: VALE ) gained about 25% over the past year, and my colleague Eric Bleeker lists it as one of "7 Stocks with Exploding Profits on Sale." Its operations in China have some excited and others applying caution, but it also stands to benefit from plenty of non-China business, such as construction for the 2016 Olympic Summer Games and the 2014 World Cup, both to be held in Brazil.
Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. U.S. Steel (NYSE: X ) , for instance, dropped 11% over the past year. The stock, along with AK Steel (NYSE: AKS ) , has been upgraded recently by Deutsche Securities, though the firm doesn't have the best record when it comes to metals-related forecasts.
Companhia Siderurgica Nacional (NYSE: SID ) , another Brazilian steel giant, lost 31% over the past year, but stands to benefit from all the factors above.
The big picture
Demand for steel isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.
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