Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some volatile stocks to your portfolio, the PowerShares S&P 500 High Beta ETF (NYSEMKT:SPHB) 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.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is a relatively low 0.25%. The fund is on the small side, 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. (It did underperform the S&P 500 over the past year, and beat it in 2012.) 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 high volatility?
One reason to be drawn to volatile stocks is that they tend to do especially well in bull markets -- and our global economy is starting to pick up steam, with the stock market rising in recent years. Still, more than recommending that you seek out high-volatility stocks, I’d urge you to just not discount them. Some folks fear volatility, but remember that for most of us, it’s long-term performance that matters most, not short-term zigs and zags.
More than a handful of high-volatility stocks had strong performances over the past year. Micron Technology (NASDAQ:MU), for example, surged 20%, with bulls seeing growth in tablets and smartphones driving demand for memory chips. The stock soared to a 52-week high recently when Micron posted its second-quarter earnings and lower costs and rising margins hinted of a return to profitability soon. Micron’s purchase of Japanese manufacturer Elpida seems promising, boosting its capacity and its relationship with Apple.
Genworth Financial (NYSE:GNW) gained 16%, in part on the recovering housing market, which will boost its mortgage insurance business, even as it distances itself from that. (A suggestion in Barron’s that the stock is cheap also helped.) Genworth’s long-term care insurance is also not a great profit driver lately, despite some competitors having exited that market. In addition, the company has warned that if interest rates remain low in the coming years, that will reduce profitability and hurt its turnaround efforts.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. JDS Uniphase (NASDAQ:VIAV) sank 3%, despite blowing past earnings estimates in its second quarter. The telecom equipment maker has been hurt by the world’s sluggish economy, but with smartphones and tablets proliferating rapidly and telecom companies inevitably needing to spend more on their infrastructure, its future seems promising.
Advanced Micro Devices (NASDAQ:AMD) plunged 69%, and is now firmly in penny-stock territory. It hasn’t been kind to many investors, averaging an annual loss of about 7% over the past 20 years. The company is challenged by a struggling PC market and has suffered some heavy free-cash-flow losses in recent years. Still, bulls are hopeful about its recent cost-cutting and also about the buyout of Dell perhaps inspiring a buyout of AMD. Analysts at Macquarie Capital have upgraded AMD to outperform on high expectations for its video game chip business, and AMD has been investing in photo-editing software, 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.