Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If volatility in a stock freaks you out a bit, and you'd like to add less-volatile holdings to your portfolio, the iShares MSCI USA Minimum Volatility ETF (NYSE: USMV) 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 iShares ETF's expense ratio -- its annual fee -- is a very low 0.15%. The fund is a bit on the small side, 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 too new to have much of a track record, without even a year on the books. 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 deemed to feature low volatility had strong performances over the past year. Mortgage REITs (real estate investment trusts) Annaly Capital (NYSE: NLY) and American Capital Agency (Nasdaq: AGNC) gained 9% and 47%, respectively, for example -- and both sport dividend yields above 12%! These "mREITS" are struggling a bit in our low-interest-rate environment, though, and the Fed's recent QE3 plans aren't good news for them. Some mREITs have reduced their dividends and more cutting may be ahead -- though even a 50% cut would leave them at compelling levels. Another opportunity for them is raising funds via secondary offerings.
American Tower (NYSE: AMT), which rents tower space to wireless carriers worldwide, surged 30%. Bulls like its recurring revenue from long-term contracts and its potential for growth, given rising demand for high-speed data. Bears worry that it may have appreciated so much that it's less of a bargain now. The company also recently converted to REIT status, meaning that it will have to pay out at least 90% of its earnings in dividend form.
Then there's Duke Energy (NYSE: DUK), up 13%, and recently yielding nearly 5%. Utilities tend to be less volatile than much of the market, as energy is a rather defensive business. No matter what the economy is doing, we want our electricity. The company's earnings have been growing at a good clip, but revenue has been growing rather slowly. The company's investments in renewable energy bode well for its future, but less auspicious are investigations into how it conducted its merger with Progress Energy.
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.
If you like the idea of dividend yields above 12%, take some time to learn more about Annaly Capital in our new special research report. It lays out the potential and the risks for the stock, and comes with a year of free updates, as well. Click here to check it out.
