Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If, for example, you're interested in investing in companies in which insiders have been loading up on shares (as that can only be a bullish move), the Guggenheim Insider Sentiment ETF (NYSE: NFO) 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 Guggenheim ETF's expense ratio -- its annual fee -- is 0.65%. The fund is fairly small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed rather well, beating the S&P 500 over the past five years and roughly matching it over the past three. 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.
What's in it?
More than a handful of companies with insider buying had strong performances over the past year. General Electric (NYSE: GE), for example, soared 52%, passing a 52-week high and delivering operating-earnings increases for nine quarters in a row. GE has also announced plans to split its energy infrastructure operations into three parts, and its investing more heavily in energy. The split should help the company save several hundred million dollars annually. Meanwhile, GE Capital is buying $7 billion in bank deposits from MetLife, and GE has launched a new global GE Mining division, with its own CEO.
Far smaller than GE but up 31% over the past year is TASER International (Nasdaq: TASR), making electronic control devices used in the military, in law enforcement, and elsewhere. Its revenue recently jumped 33%, and analysts at JPMorgan Chase have upgraded the stock, seeing law enforcement and others upgrading their stock, and encouraged by some big orders from Florida and California. Some worry that it's overvalued, though, with a P/E ratio above 130 and a forward P/E near 30.
Mortgage and fleet-management services company PHH (NYSE: PHH) gained 29%, positioning itself for long-term success by deleveraging and increasing liquidity. Its CEO recently commented on second-quarter results, saying, "We are pleased to have delivered solid, positive core earnings, driven by growth in our franchise platforms, despite our planned decrease in correspondent loan originations, elevated foreclosure-related reserves and costs, as well as a $16 million loss related to the termination of an inactive mortgage reinsurance agreement."
Rentech Nitrogen Partners (NYSE: RNF) has seen its shares roughly double in less than a year. It recently sported a dividend yield near 12%, but some worry that it might not be sustainable. (Still, even a 50% cut would leave an attractive yield.) The company has gotten a boost from the low price of natural gas, a key input in its nitrogen production, but low prices aren't a long-term given. The recent drought in the Midwest may boost demand for fertilizers, too.
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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