Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to invest in most or all of the 30 behemoths that make up "the Dow," as they represent a wide swath of the American market, the SPDR Dow Jones Industrial Average ETF (NYSE: DIA ) 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. (Know, though, that the Dow is constructed in a suboptimal way, basing itself on stock prices.)
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a very low 0.17%. It sports a dividend yield near 2.4%, too.
This ETF has not significantly outperformed the overall market over the long run because it reflects the overall market, to some degree. It's underperforming the S&P 500 so far this year, and it topped the S&P 500 last year, but over a decade they're quite close. 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 turnover rate close to 0%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
More than a handful of Dow components had strong performances over the past year. General Electric (NYSE: GE ) , for example, soared 48%, passing a 52-week high and delivering operating-earnings increases for nine quarters in a row. Its GE Capital division is seeing its health improve and has resumed paying its parent company a dividend. GE has also announced plans to split its energy infrastructure operations into three parts, and its investing more heavily in energy. The split should help the company save several hundred million dollars annually. GE would be performing even more impressively, though, if it weren't fighting against a global slowdown and fluctuating currencies. Its dividend yield tops 3%.
Intel (Nasdaq: INTC ) gained 27%, and recently lowered its expectations for the current quarter, citing factors such as weak PC sales, emerging markets exhibiting slowing growth, some customers cutting back on inventory, and various macroeconomic factors. Still, bulls see a lot to like in the company, such as its recent news of cutting energy consumption in its chips by 41%. It even sports a 3.7% dividend yield.
Cisco Systems (Nasdaq: CSCO ) , up 26%, has had a tough time in the past year or two as it boosted its efforts in areas such as servers, cut prices, and faced tough competition. Things are looking much brighter lately, though, as the company has posted very strong quarterly results and even hiked its dividend... by 75% (to nearly a 3% yield)! Meanwhile, it bodes well for Cisco that networking traffic is expected to surge in the coming years. The company, already involved in cloud computing, is digging in deeper by partnering with VMware.
Even beleaguered megabank Bank of America (NYSE: BAC ) advanced, gaining 27%. By selling off non-core assets, the company has been collecting moola and bolstering its balance sheet. It has also been shutting down lots of ATMs as it beefs up its mobile-transaction apps. Its troubled mortgage operations have been holding it back, but it posted a net gain in its second quarter, and some see it as an attractive buy right now. Remember, though, that when it comes to rational compensation plans and corporate governance, this company isn't the best example.
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.
If you're thinking of investing in General Electric, check out our new premium research report on it. Our analysts have jam-packed this report with the opportunities and threats that could cause GE to rise or fall, and the report and comes with a full year of updates.