Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some environmental services stocks to your portfolio, the Market Vectors Environmental Services ETF (NYSEMKT:EVX) 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 Market Vectors ETF's expense ratio -- its annual fee -- is 0.55%. The fund is very small, 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 has outperformed the world market over the past three and five years. 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 environmental services?
Interest in environmental responsibility and alternative energies has been growing, and is likely to keep doing so. Many of the companies in environmental services are still small, with lots of room to grow. And since we can't know which ones will grow most, it can make sense to invest in a bunch of them, as this ETF permits.
More than a handful of pro-environment companies had strong performances over the past year. Waste Management (NYSE:WM) surged 14%. Unbeknownst to many, the leader in garbage collection is also a recycling giant and a leader in converting waste and landfill gases to energy. It offers a hefty 3.8% dividend yield as well, and it has been streamlining its business and cutting costs.
Rentech (NYSEMKT: RTK) gained 6%. It has offered investors early entry into the biofuel industry and established nitrogen fertilizer operations. Its bottom line has been in the red recently and it's a penny stock, but its free cash flow has turned positive. The company has been shifting its focus away from alternative energy and toward opportunities that offer more immediate payoffs.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Veolia Environnement (OTC:VEOEY) shed 8%, and has been doing its own shifting of focus, shedding waste operations and boosting its water management work. It's cutting costs and working on paying down a lot of debt, and its earnings recently dipped into the red.
Clean Harbors (NYSE:CLH) slid 15%, with some investors not excited about its $1.25 billion acquisition of Safety-Kleen. That buy can help the disaster-relief and clean-up specialist address oil spills, though, which seem like they'll be with us for quite some time. The company is poised to profit in other ways, too, such as by dealing with climate-change-related storms that wreak havoc on coastlines. Its operational diversification is another plus.
The big picture
Demand for environmental services isn't going away anytime soon. 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.