Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect consumer discretionary companies to see their fortunes improve as the global economy recovers, the Vanguard Consumer Discretionary ETF (NYSE: VCR) 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 a lot 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 0.19%. (Vanguard is known for very low fees.)
This ETF has performed rather well, topping its benchmark handily 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 7%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Plenty of consumer discretionary companies had strong performances over the past year. Take travel specialist priceline.com (Nasdaq: PCLN), for example, up 30%. Generating the lion's share of its revenue abroad, it should benefit from faster economic growth in developing and emerging economies. It also sports very hefty growth rates and profit margins. Its main drawback just might be that, in some investors' eyes, it's overvalued. But then again, it has seemed overvalued for many years while it has kept climbing.
Las Vegas Sands (NYSE: LVS), meanwhile, gained 16% with the help of properties in the hot regions of Macau and Singapore, and it plans to expand in Europe and Vietnam. Another growth opportunity lies in online gambling, which may soon be legal in many states. Various Sands competitors have been snapping up online gambling companies, but Sands has not yet gotten very involved. Bears worry about a slowdown in Macau, as more casinos open to handle demand.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Ford (NYSE: F), for example, shrank by 27%, though it seems to be turning itself around effectively. Several credit-rating agencies have recently upgraded it, and sales have been strong in the U.S., Ford's most profitable market. Still, sales are sluggish in Europe, and the company has a lot of debt to pay down.
Strong vehicle sales will boost Johnson Controls (NYSE: JCI), down 20%, as it supplies components and technology for them. The company has been paying a dividend regularly since 1887 -- and has been upping it robustly in recent years, as well. The company is also involved in retrofitting buildings to make them more energy-efficient -- and is working on the Empire State Building, among others.
The big picture
Demand for consumer-discretionary companies isn't going away anytime soon -- it just fluctuates along with the health of the economy. 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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