Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some stocks to your portfolio that seem undervalued, the Vanguard Value ETF (NYSE: VTV) 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 value ETF's expense ratio -- its annual fee -- is a very low 0.10%. (Vanguard is known for low fees.) It recently sported a dividend yield near 2.6%, as well.
This ETF has actually not performed that well, underperforming the broad market over the past three and five years. It's the future that matters most, though, and one ray of hope is that according to Forbes, about 10% of the ETF's holdings have seen insider buying, which reflects management confidence. 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 23%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
More than a handful of big value companies had strong performances over the past year. Domestic tobacco giant Altria (NYSE: MO), up 35%, recently yielded 5.1%. Altria's bulls like its strong dividend history, its growing smokeless tobacco business, and its stake in beverage giant SAB Miller. Bears, though, don't like America's shrinking base of smokers, competition from discount brands, increasing regulation of the industry, and rising taxes on tobacco. Still, the industry does boast customers who are literally addicted to its offerings, and it's been a great longtime cash generator.
General Electric (NYSE: GE), up 34%, recently yielded 3.3%. The diversified powerhouse has been beefing up its involvement in alternative energies -- for example installing hundreds of wind turbines in Brazil -- and has reported that its strengthened GE Capital unit has resumed paying its parent company a dividend. Its transportation business has been growing particularly briskly, and many like its growing attention on industry over finance.
Abbott Labs (NYSE: ABT), up 31%, recently yielded 3.1%. The company will soon be splitting its pharmaceutical business from its nutrition and devices businesses, which some expect will unlock more value for investors. In the meantime, though, the company just got good news when the FDA moved to approve Abbott's $8 billion drug Humira for an additional condition, colitis, paving the way for more revenue. Meanwhile, the company has been profiting from sizable business in fast-growing emerging markets.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Bank of America (NYSE: BAC), for example, was basically flat, but that's better than giving up ground, as it has done for a few years. It's a company with plenty of risk, such as its exposure to troubled parts of Europe and its heavy involvement in mortgages, but over the long run, many expect it to do well. Its second-quarter results featured growing revenue and profits, but it also hasn't made much progress in modifying loans under a settlement agreement, at least compared to peers.
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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