Behold – a Basket of Rapid Growers

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some small-cap companies to your portfolio and favor those with positive earnings over the past year, the WisdomTree SmallCap Earnings ETF (NYSE: EES  ) 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.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The WisdomTree ETF's expense ratio -- its annual fee -- is a relatively low 0.38%. It even offers a dividend yield of about 1.4%, when most small-cap stocks have not yet begun to pay dividends. The fund is small, though, 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 ETF has performed well, resoundingly beating 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.

Why small-caps?
Small-caps can be riskier than their larger counterparts, but they also sport more potential, as they can grow faster if they perform well. In general, it's smart to hold a diversified portfolio, with small, medium, and large companies in it, ideally from different industries and regions.

Plenty of small-cap companies had strong performances over the past year. Semiconductor chip designer Cirrus Logic (Nasdaq: CRUS  ) surged 83%, with its chips in almost every iProduct. The downside of that is its dependence on Apple (Nasdaq: AAPL  ) for a big chunk of its revenue. Still, the company posted solid third-quarter results recently, and issued strong projections, too. Its biggest problem at the moment seems to be that it's scrambling to keep up with demand.

PDL BioPharma (Nasdaq: PDLI  ) advanced 37%, collecting royalties from a slew of medications. It offers a tempting 9.2% dividend yield, but revenue has not been growing briskly, and bears worry about a handful of patents that expire next year. Management has said it's seeking other revenue-generating assets.

Image-sensor specialist OmniVision Technologies (Nasdaq: OVTI  ) gained 9%, participating in the booming growth of smartphones. The company provides cameras for iPhones, but it also faces competition in that realm, such as from Sony (NYSE: SNE  ) , which is also providing cameras for iPhones. It recently announced a cost-effective new image sensor, and noted that, "Industry reports are predicting an annual demand of more than 450 million 5-megapixel image sensors over the next three years."

Other companies that didn't do as well last year could see their fortunes change in the coming years. Power-One (Nasdaq: PWER  ) , in the beleaguered solar-power industry, is down 25%. It looks like a bargain to some, with improved market share, financial results, and demand. It's also expanding globally, and is poised to benefit as the industry heats up.

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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