Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the materials industry to prosper as the global economy recovers and construction and infrastructure projects proliferate, the Vanguard Materials ETF (NYSE: VAW ) 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 0.19%. (Vanguard is known for very low fees.)
This ETF has performed rather well, beating 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.
With a low turnover rate of 14%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Recent years have been tough on many materials companies. Some had relatively strong performances over the past year. International Paper (NYSE: IP ) , yielding 3.6%, is poised to perform well, digesting its acquisition of Temple-Inland and expanding into regions with economies growing faster than ours, such as Brazil. As part of its acquisition agreement, the company is selling its three containerboard mills, which should bring in nearly half a billion dollars, and expects the Temple-Inland deal to delivery synergy savings of $400 million over the first two years.
Praxair (NYSE: PX ) , meanwhile, gained 4%, offering a range of industrial gases and related equipment. It's been a long-term dividend giant, and operates in several continents, including troubled Europe. (So when Europe recovers, that should boost Praxair's performance.) The company has been reducing its share count in recent years (thus making remaining shares more valuable), and has been refinancing debt at lower rates. It inked a record sum of new contracts in 2011 and ended the year with an order backlog of $2.7 billion.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Cliffs Natural Resources (NYSE: CLF ) , specializing in iron ore pellets and metallurgical coal (used in steel production), shed 43%. Worries about slowing growth in China have put pressure on the company and its peers, but offsetting some of that is its purchase of Consolidated Thompson, which does a lot of business with China. Patient investors can enjoy a 5.2% dividend yield -- which reflects a recent increase of more than 100%!
Fertilizer giant Mosaic (NYSE: MOS ) also saw shares fall over the past year, by about 20%. Its potash-producing peers had a rough year, as well, but expectations are rising for the year ahead and the stock looks attractive at recent levels, with its P/E ratio recently below 11. Net profit margins have generally been growing in recent years, too, and top 18%, and the company benefits from being one of only three members of a legal cartel.
The big picture
Demand for materials isn't going away anytime soon. 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.
Learn about The Only Investments You'll Ever Need. And if you're looking for some great investments beyond ETFs, consider The Least Dangerous Stocks in the Dow.