Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some consumer discretionary companies to your portfolio but don't have the time or expertise to hand-pick a few, the Guggenheim S&P Equal Weight Consumer Discretionary ETF (NYSEMKT: RCD ) 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. This ETF, focused on consumer discretionary companies, sports a relatively low expense ratio -- an annual fee -- of 0.50%. 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 consumer discretionary companies ETF has performed well, trouncing the world market 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.
Why consumer discretionary companies?
Companies offering staples such as shampoo and cheese are defensive, reacting less to market downturns. But consumer discretionary companies can be powerful performers, too, especially as economies emerge from slumps, as we're doing now.
More than a handful of consumer discretionary companies had strong performances over the past year. Netflix (NASDAQ: NFLX ) soared some 371% and is near a 52-week high. With a market cap just below $20 billion, one analyst recently suggested it could be a $75 billion company within a few years. One catalyst could be its plans to appear on cable company set-top boxes in a move that conjures thoughts of Trojan horses. Meanwhile, Netflix is also seeing success from its original programming, and many have high expectations for its international potential. Netflix stock is not for the faint of heart, and it's been a bit jittery as the latest earnings report approaches.
Best Buy (NYSE: BBY ) , left for dead by many investors not so long ago, surged 144%, executing a seemingly impressive turnaround. Its new CEO has been cutting costs and making the company more competitive. The company just posted a profitable quarter, but its same-store sales (those at locations open a year or longer) have not been growing. Bulls have faith in the recovery plan, but others worry about slow growth and competition such as Amazon.com.
Priceline.com (NASDAQ: PCLN ) has jumped 73%, has crossed the $1,000-per-share line, and still seems to have "gas left in the tank." The company has been growing in part via savvy acquisitions, such as by gobbling up Kayak.com. It has also been taking on more debt, with which it can buy back shares or invest in further growth. Its hotel division is growing briskly, and its investments into mobile technology are also paying off, while many salivate at its international opportunities.
Other consumer discretionary companies didn't do quite so well over the last year but still impressed. GPS specialist Garmin (NASDAQ: GRMN ) gained 29%, and yields a solid 3.8%. Many have dour outlooks for the company, as its devices are losing ground to smartphones with similar embedded technology that helps people find their way. But it's not standing still, repeatedly coming out with new products such as a $350 smart watch that can guide golfers through thousands of courses. Wearable "action cameras" are also in the works, and Garmin supplies its products to auto makers to include in various models and is thus positioned to profit from an uptick in the auto sales.
The big picture
Consider adding some consumer discretionary companies to your portfolio. A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in it -- and profiting from it -- that much easier.