Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you want some undervalued small caps in your portfolio because of their great potential to grow, the Vanguard Small Cap Growth ETF (NYSE: VBK ) 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 lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a very low 0.10%, which won't eat into your returns much. (Vanguard is known for low fees.)
This ETF has performed rather well, beating the large-cap S&P 500 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 small-cap companies had strong performances over the past year. One of the best examples is Pharmacyclics (Nasdaq: PCYC ) , up an incredible 458%. A major factor behind that is hopefulness about its ibrutinib drug, which targets blood cancers such as non-Hodgkin's lymphoma and chronic lymphocytic leukemia. The drug is currently in the middle of phase 2 trials, and has gained the backing of Johnson & Johnson. If your interest is piqued, remember that it's still in the red and hasn't gained that FDA approval yet.
Onyx Pharmaceuticals (Nasdaq: ONXX ) , meanwhile, surged around 127%, mainly on FDA approval of its multiple myeloma drug Kyprolis (despite a failure for its liver-cancer drug Nexavar). Some bulls are also waiting to see if Onyx's Nexavar partner Bayer will end up buying the whole company, for the rest of its pipeline. In the meantime, though, approval means revenue for this biotech company. Indeed, in its second quarter, the company reported revenue up 7%, ahead of estimates, while net losses were a bit bigger than expected.
Business commerce solutions provider Ariba (Nasdaq: ARBA ) gained 65%, partly on news that it's being acquired by SAP in an attempt to better compete with Oracle. The deal isn't finalized yet, as the Justice Department is running it through the regulatory approval process per antitrust laws. In the meantime, Ariba's latest quarterly report showed revenue up 12%, and a loss of $0.01 per share, much improved from the year-earlier loss of $0.13.
Questcor Pharmaceuticals (Nasdaq: QCOR ) shares advanced 25%, but it's been a bumpy ride, with the shares surging on solid sales of its multiple sclerosis drug Acthar, and then diving on reports of lower-than-expected rebates for Acthar. Still, it's a biotech company with actual, rising profits and some think the stock's fall was an overreaction. Several analysts have upgraded the stock lately.
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.
There are plenty of other appealing ETFs out there to consider. Learn about three that our Fool analysts think are a good investment in the Fool's free report "3 ETFs Set to Soar During the Recovery."