Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you want to invest in a basket of America's biggest companies, the PowerShares QQQ ETF (NYSE: QQQ ) could save you a lot of trouble. While the Dow Jones Industrial Average reflects only 30 companies, leaving out many major blue chips, and the S&P 500 sports so many companies that most have little influence on it, the PowerShares QQQ tracks the Nasdaq 100 index, which includes 100 of the biggest companies trading on the Nasdaq. You're more likely to find younger and potentially faster growing companies on the Nasdaq, as well, compared to the more venerable New York Stock Exchange.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is a low 0.20%.
This ETF has performed well, beating the S&P 500, on average, over the past three, five, and 10 years. 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 29%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Plenty of Nasdaq 100 companies had strong performances over the past year. Celgene (Nasdaq: CELG ) , for example, surged 43%, with bulls liking its strong pipeline of drugs in development, and also speculating that it might be bought out. Its Revlimid drug, for anemia and multiple myeloma, is already raking in some $3 billion in sales; it has recently received approval in Japan and awaits other global approvals.
Wireless chip and patent king Qualcomm (Nasdaq: QCOM ) gained 26%. The company's recent 16% dividend hike reflects management confidence, and bulls like Qualcomm's entry into the notebook market with a new microprocessor chip.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Chinese search giant Baidu (Nasdaq: BIDU ) lost 1%, for example, but in its last quarter it grew revenue and earnings by 83% and 88%, respectively, over year-ago levels. It faces some renewed competition from Google, but its dominant position makes that not a huge worry. With the iPhone now selling in China, there's talk that a deal may be struck to put Baidu on it as the main search engine.
Meanwhile, Israel-based Teva Pharmaceuticals (Nasdaq: TEVA ) , which specializes in generic drugs yet also develops its own, shed 9%. Many pharmaceutical companies are facing the challenge of their blockbusters' patent protections expiring, but those challenges represent opportunity for Teva.
The big picture
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.