Behold an Outperforming Mid-Cap Index Fund
Jan 11th 2013 8:16PM
Updated Jan 12th 2013 1:05AM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some medium-sized companies to your portfolio, the RevenueShares MidCap ETF (NYS: RWK) 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's based on the S&P MidCap 400 index and holds the same stocks, but with a twist : It weights them by revenue, not by their market cap.
ETFs often sport lower expense ratios than their mutual fund cousins. The RevenueShares ETF's expense ratio -- its annual fee -- is 0.54 %. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed reasonably, but it's also very young. It outperformed the S&P 500 over 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.
Why mid caps?
Mid caps can be wonderful additions to portfolios because they've proven themselves to some degree, having grown to mid-cap size, but they also still have a lot of room to grow -- before they become large caps.
Plenty of mid-cap companies had strong performances over the past year. Oil refiner and marketer HollyFrontier (NYS: HFC) surged more than 80%, with some still seeing it as undervalued. It has benefited, as refiners do, from drops in oil prices that boost refinery margins. The company is among the best-performing refiners, benefiting from a good location, near inexpensive West Texas Intermediate crude. It's also more profitable than many peers.
Office Depot (NYS: ODP) gained a solid 64%. It faces tough competition online and from companies such as Staples (NAS: SPLS) , Amazon.com (NAS: AMZN) , and Wal-Mart (NYS: WMT) , along with many businesses transitioning to more digital communications. It does sport positive free cash flow, but revenue has been shrinking and the company's North American president is departing. It has been topping some expectations and cutting costs, but it's in a tough business.
Truck and vehicle specialist Oshkosh (NYS: OSK) gained 35%, as billionaire Carl Icahn made an unwelcome bid for it. That threat has receded now, and the company is getting rid of its "poison pill" defense. One of its challenges has been cuts in military spending. Some expect it to prevail, evidenced by analyst upgrades.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Supermarket chain SUPERVALU (NYS: SVU) plunged more than 60% over the past year, for example. Its revenue has been shrinking in recent years, and the company suspended its dividend a few months ago. Its cash has been declining while debt has been rising, so it's not a surprise that it's open to being acquired. Of course, those who don't think the company is in deep trouble think it's now attractive. In late-breaking news, the company just struck a $3.3 billion deal to sell five of its chains -- Albertsons, Jewel-Osco, Acme, Shaw's, and Star Market -- to Cerberbus Capital.
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.
The article Behold an Outperforming Mid-Cap Index Fund originally appeared on Fool.com.Selena Maranjian, whom you can follow on Twitter, owns shares of Amazon.com. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com, Staples, and SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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