Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect industrial-materials companies to thrive as our global economy inevitably gets back on track, 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.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a low 0.24%.
This ETF has performed rather well, handily beating the S&P 500 over the past 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 10%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Cliffs Natural Resources (NYSE: CLF) gained 25% over the past year, and many are bullish on the iron and coal company's future, as it supplies demand in developing nations such as China. As my colleague Alex Dumortier has pointed out, though, many companies such as Cliffs and Las Vegas Sands (NYSE: LVS) generate so much of their revenue from China that it can becomes a meaningful risk factor for their future prospects.
Phosphate and potash fertilizer giant Mosaic (NYSE: MOS), meanwhile, gained 23%, and has recently received patent approval for a phosphate innovation. With no one able to produce more land, it's up to companies such as Mosaic to help farmers grow food more efficiently.
Other companies didn't add as much to the ETF's returns last year but could have an effect in the years to come. Freeport McMoRan Copper & Gold (NYSE: FCX) gained just 4% over the past year. Assuming the U.S. government gets a lot of infrastructure work going, that will be good news for the country's largest copper company. It will also bode well for U.S. Steel (NYSE: X), which shed a whopping 39% of its value over the past year. In the meantime, the stock appears to be a good value for those with patience.
The big picture
Demand for industrial 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.
