Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add a handful of large-cap stocks to your portfolio and prefer ones that tend to not zigzag in price too sharply, the Russell 1000 Low Volatility ETF (NYSE: LVOL) 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 Russell ETF's expense ratio -- its annual fee -- is a very low 0.20%. 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 is far too young to have its performance assessed. And 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?
Plenty of low-volatility large-cap companies had strong performances over the past year. Abbott Labs (NYSE: ABT), for example, surged 30%. The company is splitting in two, dividing its pharmaceutical business from its devices and nutritional products. (Did you know that Abbott is the world's largest nutritional medicine supplier? Its brands include Ensure, Pedialyte, and Similac.)
Philip Morris International (NYSE: PM) gained 28%, enjoying more growth potential and less regulatory restrictions than its America-based cousin, Altria. It offers investors a healthy 3.4% dividend yield, strong free cash flow (more than $9 billion annually), and a powerful brand in Marlboro that can maintain pricing power. Its net profit margin towers over those of its peers, as well. A chief threat for the company is the turmoil in Europe, where it generates much of its revenue. Currency volatility can mess with its bottom-line results, which is ironic for an otherwise low-volatility company.
United Parcel Service (NYSE: UPS), meanwhile, advanced 13%, and is another prodigious cash-flow generator. The stock took a hit on mixed earnings results recently and was downgraded by some analysts, but its future looks bright. The company has gained more international exposure with its purchase of TNT Express, and it has been growing faster than its rival FedEx. TNT recently posted earnings much improved from previous quarters, and the US Postal Services troubles also bode well for UPS.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Hartford Financial (NYSE: HIG) shed 30%, plagued in part by low interest rates that dampen its earnings potential. The company has stopped selling new annuities and is open to selling off some of its businesses, as well.
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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