Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect companies rated by analysts as strong buys to outperform their lesser-buy counterparts, the Guggenheim Raymond James SB-1 Equity ETF (NYS: RYJ) 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 fund invests in companies rated as "Strong Buys" by Raymond James & Associates.
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is 0.75%. That's a good bit higher than many ETFs, but still well below the typical stock mutual fund.
This ETF has performed rather well, but it's also very young, begun in 2006. It has outperformed 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.
What's in it?
Many of the companies this ETF has invested in have posted losses over the past year. Such drops likely influenced the Raymond James analysts' calls, as a price drop for an attractive company makes it even more attractive.
Optical networking component giant JDS Uniphase (NAS: JDSU) dropped 20%, partly due to inventory buildup at communications companies and sluggish orders. But the company's prospects remain strong, its profit margins have been rising, and it's more diversified than some of its peers, leaving it less vulnerable to bad news. Micron Technology (NAS: MU) , down 18%, has been affected by what some see as the impending death of the PC industry, as tablets and other devices proliferate. But Micron's chips reside in all kinds of devices, and it's experiencing strong demand from areas such as solid-state storage drives.
Networking equipment maker Ciena (NAS: CIEN) shed 37% over the past year, as it struggles to turn the corner into profitability and deals with significant debt. It's making progress, though, posting strong customer and revenue gains in its third quarter; its fourth quarter wasn't quite as rosy. Finally, there's Transocean (NYS: RIG) , off by 40%, and now associated with grisly oil spills and expensive lawsuits. The world's largest offshore drilling contractor is seen by some as an attractive acquisition target, though it sports hundreds of millions of dollars in backlog orders, and has been raising some of its prices, as well.
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.
At the time thisarticle was published LongtimeFool contributorSelena Maranjianholds no position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Transocean. 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 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.