9 ETFs to Help Diversify Your Portfolio in 2013

In the theme of Christmas and the spirit of giving, I plan to use the next two weeks leading up to Christmas to count down the 12 Days of Christmas in all its Foolish glory. In my rendition of this Christmas tale, you won't be hearing about turtle doves or French hens, but you'll probably hear about great ways to save money in 2013 or about CEOs who laid rotten eggs in 2012.

In the previous "Foolish Days of Christmas" we've looked at:

As always, I ask you to sing along with me: "On the 9th day of Christmas my true love gave to me ..."

Nine ETFs to help diversify your portfolio!

With investors being increasingly cautious with their cash and investing habits, electronic-traded funds, or ETFs, give investors a way to own large baskets of stocks all under one umbrella fund. Here are nine to consider for 2013 that could help diversify your portfolio.

1. iShares Dow Jones U.S. Pharmaceutical Index (NYSEMKT: IHE  )
This one's for the health-care junkies who love high-yielding pharmaceutical companies. Instead of facing big risks from patent-cliff expirations and guessing which big pharmaceutical companies will be hurt and which won't, investors can choose to spread their money out by purchasing this ETF. It has an annual expense of 0.47% (right in-line with the category average), has very little turnover, yields 1.7%, and has returned an average of 11% over the past five-year period. 

2. First Trust Nasdaq-100-Tech Index (NASDAQ: QTEC  )
For those of you who can't get enough technology companies, this ETF focuses on the 100 largest within the Nasdaq 100. Trying to figure out whether you prefer Internet companies, networkers, or semiconductor stocks? Have no fear, because this ETF has them all. It has an annual expense ratio of 0.6% (a smidge higher than the industry average) and a yield of 0.52%, and it's averaged an index-beating 3.5% return over the past five years. 

3. PowerShares Dynamic Energy Exploration & Production (NYSEMKT: PXE  )
This ETF is for those who envision themselves as Scotty and "have to have the power!" This ETF invests in oil and gas energy companies (and gives you refinery exposure as well) throughout the world, yet the average P/E of its investments is only 9! It boasts an annual expense ratio of 0.65% (also a smidge higher than the category average), but it makes up for it with a yield of 1.3%, and a five-year average return of 3.7%, which is incredible considering oil's nasty plunge in 2008. 

4. PowerShares WilderHill Progressive Energy (NYSEMKT: PUW  )
From deeply discounted fossil fuels, we move to another energy ETF -- but with a vastly different focus. The WilderHill Progressive Energy ETF invests in traditional alternative energies -- solar, wind, and the like -- but also invests in clean-burning nuclear energy and companies that deal with fossil fuels but are developing cleaner technologies to use them. Its annual expense ratio of 0.71% is a tad higher for the sector, and its yield of 0.8% isn't much to look at, but its three-year average return of 4.6% handily beats its peers. 

5. iShares S&P U.S. Preferred Stock Index (NYSEMKT: PFF  )
I almost went with a financial index here, but the iShares S&P U.S. Preferred Stock Index is a much broader and more encompassing ETF, focused on roughly 250 companies with preferred stock. As Foolish investment planning guru Dan Caplinger described in September, preferred stock combines elements of both stocks and bonds and usually has a fixed dividend, and preferred stockholders are in line to be paid before common equity shareholders if a company comes on hard times. This ETF has an annual expense ratio of 0.48% (in line with the sector average) a huge 5.8% yield, and low turnover, and it's returned an average of 6% over the past five years. 

6. SPDR S&P Regional Banking ETF (NYSEMKT: KRE  )
So what I said before was just a tease, because I did go with a regional banking ETF here. If the scandal-ridden big banks scare you, then this ETF, which focuses on 77 smaller, value-oriented, regional banks, may be for you. Its expense ratio of 0.35% is below the industry average, its yield of 1.7% is solid, and it's returned an average of 11.2% per year since the market hit its lows three years ago. Turnover in this ETF will be a bit higher than in larger funds, but the reward could be well worth it if the banking sector continues to rebound. 

7. WisdomTree Emerging Markets Equity Income (NYSEMKT: DEM  )
Do you like big dividends? Do you like the potential for rapid growth in emerging markets? If you answered yes to both, you owe it to yourself to give this WisdomTree ETF a closer look. Focused on large, international value plays, this ETF invests in some of the highest-yielding, and low-volatility, international companies (e.g., China Construction Bank, Gazprom, and Vale). It boasts an annual expense ratio of 0.63% (in line with its category average) but a very robust yield of 3.6% and a five-year sector beating average return of 4.3%. 

8. Vanguard Long-Term Corporate Bond Index (NASDAQ: VCLT  )
If investing in a basket of stocks sends you scurrying under the sheets, then perhaps the Vanguard Long-Term Corporate Bond ETF is for you. With a focus on only investment-grade government and corporate bonds, this index will attempt to give you inflation-beating potential with minimal volatility (assuming interest rates cooperate). It has a tiny annual expense ratio of 0.12%, pays out a handsome 4.3% yield, and has returned better than 12% on average over each of the past three years.

9. SPDR Gold Shares (NYSEMKT: GLD  )
This ETF is another intriguing play for those of you who are concerned with a domestic recovery and feel that the Federal Reserve's constant increasing of the U.S. money supply could be negative for the dollar. The SPDR gold shares ETF invests entirely in physical gold bullion. While that will leave you without a dividend and an annual expense ratio of 0.4%, the simple fact that it's returned an average of 16.5% over the previous five years is bound to intrigue even the most pessimistic of investors.

To learn more about a few ETFs that have great promise for delivering profits to shareholders in a recovering global economy, check out The Motley Fool's special free report, "3 ETFs Set to Soar During the Recovery." Just click here to access it now.


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