Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to diversify your portfolio with some international holdings and you favor smaller companies because of their ability to grow faster, the Schwab International Small-Cap Equity ETF (NYS: SCHC) 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. It has a fairly heavy focus on Canadian companies, which is good if you're trying to avoid Europe and less ideal if you're looking for emerging markets.
ETFs often sport lower expense ratios than their mutual-fund cousins. The Schwab ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. It offers an appealing dividend yield of 3.3%, as well. The fund is also fairly small, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has underperformed its benchmark over the past year, but it hasn't really been around long enough to have a sufficient track record to assess. 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 18%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
More than a handful of smallish international companies had strong performances over the past year. Franco-Nevada (NYS: FNV) , a gold-focused royalty and stream company, gained 20%. It has been growing revenue by double-digit rates in recent years (with a little dip in the last quarter), though earnings growth has been choppier. The company recently lowered its expectations for 2012 due to weak commodity prices, also noting that its costs have been rising.
Pembina Pipeline (NYS: PBA) advanced 9% and was recently yielding 6%. Earlier this year, it closed on its acquisition of Provident Energy and joined the NYSE. Pembina recently reported strong revenue and earnings growth, with management noting weak propane pricing due to high inventory levels and hefty capital spending as it integrates its recent acquisitions.
Other companies didn't do as well last year but could see their fortunes change in years to come. Baytex Energy (NYS: BTE) gained just 4%, and via acquisition has become more active in exploring for and producing oil and natural gas. Its dividend is near 6%, and its payout ratio was recently close to 100%. Its revenue and earnings have been growing at double-digit clips in the past few years. Those worried about low natural-gas prices can take comfort in its strong focus on oil, and management recently stressed the company's "long history of successfully executing a growth and income model" at an investor conference.
New Gold (NYS: NGD) , meanwhile, shed 17%. Its revenue growth has been solid in recent years, but its earnings have not. In a conference call last month, management exuded confidence, saying: "[B]oth our gold production and margins are expected to continue to increase in the coming years. This combination should result in exponential growth in cash flow for the benefit of our shareholders."
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.
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