Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to stock your portfolio with some large-cap companies and you favor those that seem undervalued, the Vanguard Russell 1000 Value Index ETF (Nasdaq: VONV ) 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 0.16%. The fund is fairly 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 is too young to have enough of a track record to assess, though it did inch ahead of the S&P 500 over the past year. 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 large-cap value stocks had strong performances over the past year. General Electric (NYSE: GE ) , for example, surged 48%, passing a 52-week high and planning to split its energy infrastructure operations into three parts as it invests more heavily in energy. The split should help the company save several hundred million dollars annually. Meanwhile, GE Capital is buying $7 billion in bank deposits from MetLife, and GE has launched a new global GE Mining division, with its own CEO. GE Mining will be based in Australia and aims to help mining companies be more efficient with its products and services.
ConocoPhillips (NYSE: COP ) soared 23% and recently yielded 5.1%. The company has been reshaping itself a bit lately, shedding some assets and looking into promising new arenas. For example, it has its eye on fracking opportunities in China, which have a lot of potential because of the size of reserves. But they also hold risks -- as fracking is very controversial and China is not the most dependable business environment. Some analysts have downgraded the company, worrying about the sustainability of the dividend, among other things, while other analysts see it as undervalued. The company has been buying back a lot of stock -- more than $3 billion worth in the past quarter.
Cisco Systems (Nasdaq: CSCO ) jumped 19%, and its future is looking much brighter lately, as it has posted very strong quarterly results and even raised its dividend… by 75%! (It now yields 3%.) Some expect the company to profit handsomely from growth in data-center spending, and it also 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.
Procter & Gamble (NYSE: PG ) gained 15% and yields 3.2%. The consumer-products powerhouse has been hurt by a strong dollar (since it gets much of its revenue abroad, in currencies that must then be converted to dollars) and weak spending in our sluggish economy. Other challenges include rising commodity costs, such as those for pulp, packaging, and fuel. But the company has been introducing new products, cutting costs (in part via layoffs), and investing heavily in faster-growing emerging markets.
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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