Make Money in the S&P 500 in a Newer, Better Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to invest in a wide range of large-cap companies, it's hard to beat an S&P 500 index fund. But most of them weight their holdings by market cap, giving extra influence to the biggest companies. Instead, consider the Guggenheim S&P 500 Equal Weight ETF (NYSE: RSP  ) . It weights its holdings roughly equally, and it could save you a lot of trouble. Instead of trying to figure out which large-caps will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is a relatively low 0.40%.

This ETF has performed rather well, beating the S&P 500 (as measured in its conventional, market-cap-weighted manner) over the past three and five 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.

What's in it?
Plenty of large-cap companies had strong performances over the past year. Few have fared better than Apple (Nasdaq: AAPL  ) , which surged some 74%. These eye-opening graphs tell the story of its success in recent years, but its future won't necessarily stay on the same trajectory as its past. Its challenges include developing new products and perhaps, as it has done before, entire new product categories. It's also dealing with a new CEO, following Steve Jobs' long reign. Tim Cook surprised many recently by initiating an Apple dividend.

Paint giant Sherwin-Williams  (NYSE: SHW  ) has been on a tear itself, gaining 48%. It was able to offset some rising raw materials costs by raising its prices. The company is also well positioned to benefit from a recovery in the housing market. No one knows when that will happen, but it's a pretty safe bet that it will happen sometime. In the meantime, the paint maker is expanding by adding dozens of new stores.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. U.S. Steel (NYSE: X  ) sank 43%. It's another company poised to profit from a global recovery, eventual attention to infrastructure upgrades and new construction. As more people are unable to put off new car purchases any longer, car sales will grow, which also benefits U.S. Steel.

Finally, Cliffs Natural Resources (NYSE: CLF  ) shed 30%, partly on worries about China's economy slowing down and shrinking demand for the company's iron ore and metallurgical coal. But investors should take a close look -- for one thing, the company recently more than doubled its dividend, a sure sign of confidence in its future.

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.

Learn about four ETFs you can count on. And if you're intrigued by steel but not as enchanted as you'd like to be with U.S. Steel, learn about three stocks that will help you retire rich -- one of them is an innovative steel company.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Apple, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Sherwin-Williams, as well as creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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8/20/2014 4:00 PM
AAPL $100.57 Up +0.04 +0.04%
Apple CAPS Rating: ****
CLF $16.73 Up +0.07 +0.42%
Cliffs Natural Res… CAPS Rating: ***
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