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My Best ETF Pick for 2012

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This article is part of our Best ETFs for 2012 series, in which we're seeking out the top-performing ETFs for the coming year.

Uncertainty stood as one of the central themes for investors this year. Will the consumer begin spending once again? Can the U.S. overcome gridlock in Washington? Will housing rebound? Will Europe implode? And through all of this, investors have had to find ways to still keep building their hard-earned nest eggs. Dear investor, I salute you.

Looking to the year ahead, although we see the beginning of what might be answers forming, real, concrete solutions remain elusive. With uncertainty still so pervasive, what gives investors the best chance of succeeding from here on out?

To me, the best solution is to stick to what we know works: the fundamentals. We here at The Fool always advocate investing based on sound research and original, and at times contrarian, thinking.   And with that in mind, my pick for the Best ETF for 2012 goes to the iShares Morningstar Large Value Index ETF (NYSE: JKF  ) . It may have just about the most boring name around, but I also think it gives investors a lot to like.

The road ahead
So let me get back to that forward-looking "let me tell you what will happen next year" prediction. Sorry, folks -- the answer, and the only honest answer at that, is simply: I don't know. As I mentioned above, a lot of the most central storylines of 2011 still have yet to reach a real resolution. This means controlling risk, as much as seeking return, should play a prominent role in your asset allocation for the next 12 months. Fortunately, I think this ETF offers protection in spades, especially compared to other stock ETFs.

Unfortunately, investing in stocks always carries risk. They'll tell you in business school that's exactly why stocks over the long term outperform other asset classes like bonds or cash -- because you should get greater compensation for greater risk. We invest in stocks precisely for that reason, and that long-term outperformance actually directly ties into why I and many of my fellow Fools insist that people invest with the idea of holding their picks for several years at least. Research covering over 100 years of stock market history is pretty challenging to refute.

And while this ETF doesn't guarantee a comfy year (nothing will), larger stocks typically offer greater relative safety than the market as a whole. This ETF features mature companies like ExxonMobil, Freeport-McMoran (NYSE: FCX  ) , and Ford (NYSE: F  ) . Like all the companies you'll find in this fund, odds seem pretty high these companies will still be around when we get ready to flip the calendar to 2013. And if some monumental catastrophe does inexplicably manage to wipe out these ultra-heavyweights, your nest egg will probably be the least of your problems. If you look at the top 10 holdings of this portfolio, I think you'll see both attractive risk and reward profiles looking back at you.


Market Capitalization

Price-to-Earnings (LTM)

Dividend Yield

ExxonMobil $389 billion 9.8 times 2.3%
Chevron $208 billion 7.7 times 3.2%
AT&T $174 billion 14.9 times 5.9%
Pfizer (NYSE: PFE  ) $157 billion 14.2 times 4.0%
JPMorgan Chase $129 billion 7.6 times 3.0%
Merck (NYSE: MRK  ) $109 billion 26.0 times 4.8%
Verizon Communications $108 billion 15.4 times 5.3%
ConocoPhillips (NYSE: COP  ) $96 billion 9.3 times 3.6%
Citigroup $87 billion 8.0 times 0.1%
Altria (NYSE: MO  ) $59 billion 17.1 times 5.7%

Source: Yahoo! Finance.

This should give you a decent picture of the kind of stocks you'll get with this ETF. And while I don't love all the businesses in the portfolio enough to want to hold them individually, they seem attractive as a class of stocks. As I touched on in a previous article, large-cap value stocks appear well-positioned for attractive returns going forward.

Foolish bottom line
While I wish I had a crystal ball to tell you what will pop by 100% in 2012, I of course don't. So as always, I'll advocate that investors stick to what works in today's crazed marketplace. Buying cheap, safe stocks, while not sexy, will allow you to sleep soundly at night and even stand a chance to reap some attractive returns over time. Investors who choose to follow this kind of strategy stand a better chance of weathering any bumps in the road. In a game like investing, where simply not losing money proves challenging to many, sticking with this ETF seems sensible to this Fool.

As the New Year draws nearer, you should consider all your investing options for 2012. That's why The Motley Fool recently issued a new research report detailing three ETFs set to soar during the recovery. Better yet, it's absolutely free to our readers. I invite you to pick up your free copy of this report today. Fool on, and happy investing!

Stay tuned throughout our series on the Best ETFs for 2012 to find out about all of the picks our Foolish contributors have made. Click back to the series intro for links to the entire series.

Foolish contributor Andrew Tonner holds no position in any of the companies mentioned in this article. The Motley Fool owns shares of Ford, Freeport-McMoRan, JPMorgan Chase, and Citigroup. Motley Fool newsletter services have recommended buying shares of Chevron, Ford, and Pfizer. 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 (7) | Recommend This Article (12)

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.

  • Report this Comment On December 08, 2011, at 2:08 PM, tweenthelines wrote:

    How did your best ETF pick last year work out?

  • Report this Comment On December 08, 2011, at 4:07 PM, TMFTheDude wrote:

    I didn't issue a Best ETF pick for 2011.

    The ETF featured in this article remained essentially flat throughout this year.

  • Report this Comment On December 08, 2011, at 5:25 PM, xetn wrote:

    It seems a little presumptuous to state "Best ETF pick for 2012". It would be better characterized as your best guess.

  • Report this Comment On December 09, 2011, at 12:38 AM, Chemsoldier88 wrote:


    That goes without saying. It's an educated guess. That's every investing website and every article. But, if you must...

    "So let me get back to that forward-looking "let me tell you what will happen next year" prediction. Sorry, folks -- the answer, and the only honest answer at that, is simply: I don't know. "

    "While I wish I had a crystal ball to tell you what will pop by 100% in 2012, I of course don't."

    How's that?

  • Report this Comment On December 09, 2011, at 12:57 AM, rfaramir wrote:

    If AAPL offered a dividend, might it end up in this ETF?

  • Report this Comment On December 09, 2011, at 2:02 AM, MichaelDSimms wrote:

    Except for the banks some decent companies.

  • Report this Comment On December 09, 2011, at 9:32 AM, DCUDFlyer wrote:

    Intriguing only thought is I would like to see a larger holding of consumer staples - MCD, CMG, KO, etc. etc.

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