Make Money in Mid-Caps the Easy Way

Before you go, we thought you'd like these...
Before you go close icon

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you want to balance your portfolio with medium-sized companies that still have room to grow, the Vanguard Mid-Cap ETF (NYS: VO) ETF 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 several dozen of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is an ultra-low 0.12%.

This ETF has performed rather well, beating the S&P 500 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. With a low turnover rate of 16%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Shares of Netflix (NAS: NFLX) have jumped more than 168% over the past year, as the company added customers, moved many to its higher-margin streaming service, and targeted expansion in Latin America. The stock recently tumbled, though, on news that its growth may be slowing a bit.

Other companies didn't add as much to the ETF's returns last year, but they could have an effect in the years to come. Micron Technology (NAS: MU) , for example, has lost around 10% over the past year. It's facing an antitrust lawsuit from Rambus (NAS: RMBS) that adds uncertainty to its future, and has also been affected by Japan's recent disasters, and probably by the struggles of key customer Nokia (NYS: NOK) . Still, Micron and fellow ETF denizen SanDisk (NAS: SNDK) , which fell about 3% over the past year, stand to benefit from solid sales of smartphones and tablets, which require memory chips.

The big picture
A diversified portfolio, with large, small, and medium-sized companies, makes an effective investing strategy. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier. Certain ETFs can even help you zero in on especially undervalued or fast-growing mid-caps.  

ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, "3 ETFs Set to Soar During the Recovery."

At the time this article was published Longtime Fool contributorSelena Maranjianowns shares of Netflix, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of and put options on Netflix. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners