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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 mid-cap stocks to your portfolio because they're big enough to have proved themselves to some degree and yet small enough to still have lots of room to grow, and you also favor seemingly undervalued stocks, the Vanguard Mid-Cap Value ETF (NYSE: VOE ) 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 an extremely low 0.10%. (Vanguard is known for low fees.)
This ETF has performed reasonably, topping the 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?
Lots of mid-cap companies had strong performances over the past year. Hard-drive storage specialist Seagate Technology (Nasdaq: STX ) , for example, soared about 165% and is poised to profit from increasing storage demand from both consumers with PCs and the servers of cloud-computing companies. Some worry that solid-state drives will gain in popularity and potentially hurt Seagate's hard-drive sales, but others focus on the company's dividend yield near 4%, which it has aggressively increased. Bulls also like its strong balance sheet, manageable debt, and growth rates.
Regional bank Regions Financial (NYSE: RF ) doubled in value and looks rather attractive on many counts, having repaid its TARP obligation, posting improving financial numbers, and with a powerful presence in the growing Southeast region. It has competition there, though, such as from Wells Fargo, which bought Wachovia. Some think that given its recent run, though, it's no longer quite a bargain. They don't see our persistently sluggish economy helping, either.
Mortgage REIT American Capital Agency (Nasdaq: AGNC ) gained about 46% and recently yielded nearly 14%! It has prospered in this low-interest-rate environment, but rates won't stay low forever. American Capital is regarded as somewhat more stable and less risky than various peers, having taken on more debt, but also investing in more solid mortgages, such as ones guaranteed by Fannie Mae and Freddie Mac. The dividend may fall some but will probably still remain substantial, at least for the foreseeable future. The Federal Reserve's recent extension of quantitative easing ("QE3") also arguably bodes well for the company.
Even Delta Air Lines (NYSE: DAL ) , in the perpetually challenged airline industry, gained, rising 13%. Airlines are frequently battling fare wars, volatile fuel prices, the expenses of empty seats, weather complications, and labor issues, among other things. Delta is tackling the fuel-price issue in a novel way, by buying a refinery that it expects will shave some $300 million from its fuel costs. It has also been collecting a lot of fee revenue from passengers, though that can turn them off, too. Delta has raised its fares a bit lately, and that's reflected in rising passenger revenue per available seat mile.
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.