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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some promising small-cap companies to your portfolio because of their great growth potential, the iShares Morningstar Small Growth Index ETF (NYSE: JKK ) 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 iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.30%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly 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 large-cap-heavy 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?
More than a handful of small-cap growers had strong performances over the past year. Semiconductor chip designer Cirrus Logic (Nasdaq: CRUS ) has nearly tripled in value, largely because of its strong ties to Apple. Its chips are in almost every iProduct, and with the new iPhone 5 around the corner and expected to sell well, expectations are high. Still, some now see the stock as overvalued, while others worry that it's too dependent on Apple.
Ariad Pharmaceuticals (Nasdaq: ARIA ) surged 128%, as its leukemia drug ponatinib is seen as getting close to FDA approval. It's burning through cash, though, and its share count has been rising, reflecting dilution. On the plus side, it recently got cleared for an accelerated assessment of ponatinib by the European counterpart to the FDA, and it's seeking the same with the FDA, based on very promising phase 2 trial results.
Natural-gas specialist Cheniere Energy (NYSE: LNG ) gained 105%, and bulls are excited about its plans to build a liquid natural gas export terminal to ship gas procured relatively inexpensively here to regions where it fetches a much higher price. Bears worry that competition abroad might eat Cheniere's lunch.
Real estate investment trust Omega Healthcare (NYSE: OHI ) , meanwhile, gained 52% and recently sported a 7% dividend yield. It owns many skilled-nursing facilities, which tend to carry lower costs than many other health-care facilities. Like other health-care-oriented companies, it stands to benefit as our population ages. In the company's second quarter, funds from operations surged 31%, boosted in part by asset 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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