Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect small companies to do well over time because many of them have so much potential and room to grow, the Charles Schwab U.S. Small-Cap ETF
ETFs often sport lower expense ratios than their mutual fund cousins. The Schwab ETF's expense ratio -- its annual fee -- is an ultra-low 0.13%.
This ETF's performance can't really be evaluated yet, as it's very young, with less than two years on the books. The long-term historical track record for small companies is promising, though, with the commonly used CRSP 6-10 Index averaging 11.2% annually since 1926, vs. 9.4% for the S&P 500. 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 11%, 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 in 2011. Ulta Salon
Online software concern SuccessFactors
Other companies didn't add quite as much to the ETF's returns last year, but could have an effect in the years to come. VeriFone
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.