Make Money in Undervalued Mid Caps the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect mid-size companies to grow larger as our global economy eventually regains its footing, the Vanguard Mid-Cap Value ETF (NYS: VOE) 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 very low 0.12%.

This ETF has performed reasonably well, but it's also somewhat young, with about five years on the books. It outperformed the S&P 500 (INDEX: ^GSPC) over that period, on average, with better outperformance in the past three 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 turnover rate of 37%, 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. Mattel (NAS: MAT) gained some 29%, but along with competitor Hasbro (NAS: HAS) , it hasn't been posting promising numbers lately -- especially leading up to the important Christmas season. Some worry that electronic devices made by others will, to some degree, replace traditional games.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Frontier Communications (NYS: FTR) shed 25% over the past year, as it acquired rural phone networks from Verizon (NYS: VZ) . Some have worried about its hefty capital spending on infrastructure, but the company appears to have its finances under control, and sports a massive dividend yield, as well, recently topping 12%.

Health Care REIT (NYS: HCN) , roughly flat over the past year, remains promising due to its strength in residential care facilities, which are likely to grow as our population ages. It owns a lot of medical office buildings, too.

The big picture
Mid caps are compelling because they've proven themselves to some degree, growing from a small cap into a bigger business. Yet they still have plenty of room to grow, ideally into a large cap. 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 thisarticle was published Longtime Fool contributorSelena Maranjianowns shares of Verizon Communications, 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 Health Care REIT, Mattel, and Hasbro. 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.