Make Money in IT the Easy Way

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you consider many information technology companies undervalued, and you expect the industry to thrive as global demand for its ever-changing services grows, the Vanguard Information Technology ETF (NYS: VGT) 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 a low 0.24%.

This ETF has performed well, beating the S&P 500 over the past three and five years, on average. 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 very low turnover rate of 9%, 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. Qualcomm (NAS: QCOM) gained about 42%, partly due to strong sales for Android phones -- Qualcomm collects a percentage of each such sale. Meanwhile, its Snapdragon processor has given competitors such as NVIDIA (NAS: NVDA) a run for their money.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Corning (NYS: GLW) , for instance, lost about 19%, though many are bullish on the long-term prospects for its fiber optics and glass display businesses. Its near future may be rocky, though, with free cash flow slowing and LCD sales weakening. Cash flow has not been a problem at Broadcom (NAS: BRCM) , where margins have been growing and where hefty investments in research and development bode well for future innovation.

Meanwhile, Cisco Systems (NAS: CSCO) has lost about 35% of its value over the past year, and while some worry about falling income and margins and increased competition from Brocade Communications (NAS: BRCD) and its peers, others maintain that the stock is just too darn cheap to not gain in value in the near future.

The big picture
Demand for information technology isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.

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 QUALCOMM and Corning, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of QUALCOMM. The Fool owns shares of and has created a bull call spread position on Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of NVIDIA and Cisco Systems and writing puts on NVIDIA. 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.

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