Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some medium-sized companies to your portfolio, the Guggenheim Russell Mid Cap Equal Weight ETF (NYSE: EWRM) 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. It holds about 800 different companies, weighted equally instead of by market capitalization.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is a relatively low 0.42%, and it recently yielded about 1.6%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF is too young to have a sufficient track record to assess. 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.
Why mid-caps?
Mid caps can be wonderful additions to portfolios because they've proven themselves to some degree, having grown to mid-cap size, but they also still have a lot of room to grow -- before they become large caps.
More than a handful of mid-cap companies had strong performances over the past year. GNC (GNC) surged 37%, offering health and wellness products in the U.S. with franchises in more than 50 nations. benefits from more than 2,000 store-within-a-store locations in drugstores and elsewhere, and has been buying back shares of its stock. In its third quarter, revenue rose 15.5% over year-earlier levels, and same-store sales grew for the 29th consecutive quarter.
Tyson Foods (TSN 1.83%), the chicken, beef, and pork giant, gained 21%, posting record sales of $33 billion in fiscal 2012, though earnings did shrink. The company has been buying back shares and boosted its dividend 25% recently, along with announcing a special end-of-year dividend. The company expects strong demand in 2013, but rising feed costs could eat into profit margins.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Herbalife (HLF 2.91%) shed 22%, as many investors worry about a strong bearish position from respected hedge fund managers, such as David Einhorn of Greenlight Capital and Bill Ackman of Pershing Square Capital Management. Some hedge fund notables, though, such as Daniel Loeb, are long the stock. Bulls admire its double-digit growth rates, which have been accelerating in recent years. Those maintaining faith in the company may like its recent 2.8% dividend yield, but in such situations, it can often be smart to wait for the dust to settle.
Green Mountain Coffee Roasters (GMCR.DL), itself a former target of David Einhorn, slipped 12%. Green Mountain has been a darling among investors for quite some time, racking up huge average annual gains of 38% over the past decade. But it now faces expiring patents and lower expectations, and its stock has averaged 9% losses over the past two years.
The big picture
A well-chosen ETFcan grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
