Make Money in Mid-Cap Growth Stocks 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 expect medium-sized companies to grow over time, with many of them becoming large-cap companies, the Vanguard Mid-Cap Growth ETF (NYS: VOT) 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.

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

This ETF has performed reasonably well, beating the S&P 500 (INDEX: ^GSPC) 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 turnover rate of 38%, 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. Up 87%, Green Mountain Coffee Roasters (NAS: GMCR) has investors all confused. Some worry about expiring patents and a "frothy valuation," while others focus on promises of continued growth, with the company's machines in 8% to 10% of American homes already and new deals with Starbucks and Dunkin' Brands (NAS: DNKN) .

Vertex Pharmaceuticals (NAS: VRTX) advanced 12%, partly on the strength of its hepatitis C treatment, which has enjoyed a 75% market share. Now its drug will compete with those of other companies, such as Merck and Pharmasset (NAS: VRUS) , with its own promising oral hepatitis C drug.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Genetic sequencer maker Illumina (NAS: ILMN) sank some 45%, partly due to reduced near-term profit projections. But compared to competitor Pacific Biosciences of California (NAS: PACB) , Illumina's future seems bright, as it's more established and with greater market share.

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.

Learn aboutthe best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these10 stocks for your retirement portfolio.

At the time this article was published Longtime Fool contributor Selena Maranjianowns shares of Starbucks, 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 Starbucks.Motley Fool newsletter serviceshave recommended buying shares of Green Mountain, Illumina, Vertex Pharmaceuticals, Pacific Biosciences, and Starbucks, as well as creating a lurking gator position in Green Mountain. 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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