A Financial "VIPER"
02/03/2006 12:00 am EST
One of the reasons I’ve always been so fond of Nancy Zambell and her research is that she goes beyond "advising" in order to educate investors and provide the "tools" needed for success. In this light, her top pick for 2006 also explains an important investment vehicle.
"For quite some time, I have been 'turned off' by mutual funds, as more than 80% of them underperform the S&P 500 Index. And their management expenses, loads, and marketing fees have expanded so much that deducting those from profits often results in extremely lackluster returns. Yet, I love their ability to help investors easily diversify their portfolios, and up until a few years ago, mutual funds were an investor’s easiest route to diversification and often the only choice for 401Ks.
"That situation drastically changed with the advent of exchange traded funds (ETFs). The ETF market currently stands at a whopping $265 billion, with more than 200 diverse funds. ETFs hold tremendous advantages. Despite commissions, expenses are significantly less than most mutual funds. They can be traded all day long, instead of just once daily for mutual funds. In addition, investment turnover is not as frequent as in mutual funds, lending them to lower capital gain distributions. And there is no minimum investment.
"I am a fairly conservative investor with my subscribers' money, so I've been patiently watching the ETF market until I felt it was liquid enough and had overcome any initial hurdles that might have prevented investors from fully participating to their maximum advantage. Those days are now past us. And I feel that right now is the time to begin building your portfolio of ETFs. It is very easy--and probably wise--to invest in the broader market ETFs, such as S&P 500 SPDRs (SPY ASE), Dow Jones 30 Diamonds (DIA ASE), or the NASDAQ 100 Trust (QQQQ NASDAQ).
"But I want to start your ETF portfolio with a sector that looks particularly undervalued. I have long been a believer and successful investor in financial companies. My subscribers have taken home some fabulous profits over the years, in small regional banks, mezzanine financing companies, and real estate investment trusts. Now I have found a vehicle that will give investors a wide diversity of financial investments, using an ETF-- Vanguard Financial's VIPERs (VFH ASE).
"VFH's aim is to parallel the returns of the MSCI US Investable Market Financials--a benchmark index that measures the performance of a basket of financial stocks. This sector fund is comprised of small-, medium-, and large-cap financials, including investments in investment banking and brokerage, corporate lending, real estate, asset management, insurance, consumer finance, mortgage finance, and specialized finance. Its expense ratio is just .26%. The ETF has done well this Fall, and it has a nice dividend yield of 2.62%. Buy VHF up to $60."