Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the industrials industry to prosper as the global economic recovery gains steam, the PowerShares Dynamic Industrials ETF (NYSE: PRN ) 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 a lot of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.60%. That's a bit on the steep side for an ETF, but still far lower than the typical stock mutual fund. The fund is very small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed rather well, beating the world market 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 industrial-related companies had strong performances over the past year. United Parcel Service (NYSE: UPS ) , for example, gained 16%, with its vast network benefiting from international growth, the growth of e-commerce retailing (as it delivers so many items we order online), and acquisitions such as its $7 billion buy of TNT, which boasts strength in Europe and China, among other places. Still, UPS isn't quite firing on all cylinders right now due to Europe's woes and slowing growth in China.
Textron (NYSE: TXT ) , meanwhile, gained 15%, partly on a big vote of confidence from Warren Buffett, when Berkshire Hathaway's NetJets subsidiary placed a huge order for 150 business jets from Textron's Cessna unit. Domestically, cuts in defense spending threaten the company somewhat, but plenty of growth is expected abroad, where countries such as China are buying business jets and military choppers and planes.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Delta Air Lines (NYSE: DAL ) gained 7%, but don't let that get you too excited about the airline industry, which has long been a money loser overall, with a few exceptions. The company has benefited from fuel prices finally falling a bit, and has also addressed the long-vexing problem of fuel volatility in an innovative way: by buying a refinery! In addition, the airline has been aggressively charging fees for baggage, reservation changes, and more -- though this can backfire by ticking off customers.
Cummins International (NYSE: CMI ) gained 3%, posting strong results despite warning investors about weakness in global economies. The company's balance sheet is robust, with little debt, and it has been spending heavily on research and development and in adapting to meet stricter emission standards. On the negative side, the company has single vendors for many of its supplies, and slowing growth in China and India could hurt it.
The big picture
Demand for industrial goods and 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.
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