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High-Momentum Stocks, Dividends, and Low Fees

By Selena Maranjian - Apr 17, 2013 at 7:24PM

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There are yields of 3% or more in here.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add a wide range of growing stocks to your portfolio, the SPDR S&P 1500 Momentum Tilt ETF (NYSEMKT: MMTM) 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 combines holdings from three key indexes (large cap, mid cap, and small cap) that represent about 90% of the market and more heavily weights those stocks that have been exhibiting momentum.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. The fund is very small, though, 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 new 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 the S&P 1500 and momentum?
The S&P 1500 is a broad-market index, much like the S&P 500 (which is one of its components), but with smaller companies represented, too. That makes it ideal for average investors who'd like quick and inexpensive exposure to the overall market. It adds a bias toward stocks on an upswing, which will appeal to those who expect rising stocks to keep rising -- at least for a while.

Kind of by definition, plenty of relatively fast-moving stocks had strong performances over the past year. Gilead Sciences (GILD -0.18%) soared 121%, partly on optimism for its oral Hepatitis C drug, sofosbuvir, which has cleared four phase 3 trials, as well as for its HIV drugs. Some don't like how reliant it is on antivirals, and note that its strong revenue growth partly reflects wholesalers stocking up before price hikes, but the company does have a lot of promise.

Visa (V 2.71%) surged 35%, despite being threatened by the growth and potential of mobile and electronic payments. It has been investing in these areas, though, and may follow MasterCard's lead in pressuring eBay's PayPal business to share more data with it or face steeper fees. Visa is the dominant force in its realm, and is considering buying Visa Europe.

Procter & Gamble (PG 1.07%) jumped 23%, and recently yielded 3% (after a 7% dividend increase). The company has been struggling in recent years, reporting meager revenue growth and, until this past year, shrinking earnings. Its strong second quarter was in large part due to cost-cutting, with promises of innovation-driven growth ahead. The company has been around for a majority of America's life, moving from candles and soap to... toilet paper and soap (and many other multibillion-dollar products).

Philip Morris International (PM 1.02%) gained 12%, and yields 3.5%, focusing on tobacco sales outside the U.S., where the growth potential is higher and regulations and restrictions often lower. It's being hurt by a strong dollar, but should eventually get a boost from a recovering Europe. And though its growth has slowed some, its prospects remain solid, as developing markets develop and produce bigger middle classes able to afford lots of cigarettes.

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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Stocks Mentioned

Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$62.37 (-0.18%) $0.11
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
PG
$153.62 (1.07%) $1.63
Visa Inc. Stock Quote
Visa Inc.
V
$199.23 (2.71%) $5.26
Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
PM
$104.43 (1.02%) $1.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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