Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the gambling industry to thrive over time, the Market Vectors Gaming ETF (NYSE: BJK ) 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 Market Vectors ETF's expense ratio -- its annual fee -- is 0.65%. That's a bit higher than many ETFs, but also 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 outperformed the market over the past three years, but it's also very young, with just a few years on the books. 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 19%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Lots of major gambling companies have had weak performances over the past year, but their fortunes could change in the coming years. Wynn Resorts (NYSE: WYNN ) fell 37%, due to a slump in Las Vegas, and even its more profitable Macau properties are underperforming their rivals. On the plus side, though, the company now has permission to build on the Cotai Strip area of Macau, where other casinos have been generating big profits.
Melco Crown Entertainment (Nasdaq: MPEL ) , down 30%, has seen its Cotai property, City of Dreams, doing well, with sales recently rising 130% over prior-year levels. Las Vegas Sands (NYSE: LVS ) , down 7%, is succeeding there, as well, with three properties; it also has high expectations for growth in Singapore. Melco is the smaller company, and thus more able to grow quickly. It has recently partnered with a $1 billion casino in the Philippines, and some see it priced at bargain levels these days.
International Game Technology (NYSE: IGT ) , a major slot machine maker, shed 13%. It has been a strong free cash flow generator, despite slowdowns in the industry. The company has been looking to online gambling as a potential major source of revenue in the future, as well as international operations such as those in Latin America. Of course growth in the industry as more casino operators open new properties and maintain existing ones will also fuel sales.
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.
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