by Will Ashworth | March 19, 2012 11:45 am
The past week (March 12 to March 16) saw the S&P 500 deliver a 2.4% return, its best week in 2012 and its highest level since May 2008. That put InvestorPlace contributors in a buoyant mood as they provided readers with plenty of stock buys.
My job is to take some of those picks and provide you with ETF alternatives; funds that will allow you to own these stocks while also achieving greater diversification.
Starting off the week, Louis Navellier provided investors with five small-cap stocks worth owning. One of his picks was Monster Beverage (NASDAQ:MNST), a maker of energy drinks that continues to take market share from competitors such as Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP).
The company will eventually be acquired, so every day that goes by simply ratchets up the acquisition price. Consider this reality solid downside protection. However, for those looking for an ETF alternative, your best bet is the First Trust Consumer Staples AlphaDEX Fund (NYSE:FXG), which applies a fundamental approach using both growth and value factors to select a group of stocks from the Russell 1000.
Monster Beverage’s weighting is 4.67%, the sixth-largest holding out of a total of 37. Coca-Cola and PepsiCo are lesser holdings. So in addition to providing ownership in the three players likely to consummate a deal in the future, you own an ETF that performs well in both up and down markets.
Are you familiar with American Capital Agency (NASDAQ:AGNC)? It’s a REIT that invests in mortgage-backed securities backed by government-sponsored organizations like Freddie Mac (OTC:FMCC) and Fannie Mae (OTC:FNMA). Its dividend yield — 17% — is huge.
Last Tuesday, this had Bryan Perry talking about AGNC’s plans. Because it uses a ton of leverage, this is a classic case where an ETF alternative makes sense: You don’t want to get caught too exposed should the interest rate spread continue to narrow.
There are two ways to play this. If you believe in what American Capital Agency is doing, then go with the iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSE:REM), which has AGNC at a 14.2% weighting. The index itself measures the residential and commercial mortgage real estate sector in the U.S.
On the other hand, if you like the dividend but aren’t confident of its safety, a better idea would be to go with the PowerShares KBW High Dividend Yield Financial Portfolio (NYSE:KBWD). American Capital Agency is the No. 1 holding, but that’s still only a weighting of 5.67%.
So you’re getting slightly less exposure to AGNC. Unfortunately, the fund’s management expense ratio is 0.93%, 45 basis points higher than the iShares fund. I’d go with the PowerShares fund despite its higher management fee, though, because the extra diversification is worth it.
Home insurance was on Michael Gayed’s mind Wednesday, suggesting that companies such as Allstate (NYSE:ALL) are raising rates in some states by as much as double digits to compensate for low Treasury yields.
Unable to generate a decent return from their fixed-income investments, Allstate and its rivals are reaching into the pockets of its customers to increase returns. How are they getting away with it? Consolidation. So they’re likely to remain high even when Treasury bond yields improve.
That’s great news for shareholders, not so good for consumers. As a policyholder, you could try to find another insurer. But a better course of action might be to join your insurance company, since you probably can’t beat it.
The obvious solution might be to buy Allstate stock. But why go out on a limb when you can make a bet on all of them by purchasing the PowerShares Property & Casualty Insurance Portfolio (NYSE:KBW), which reflects the performance of 24 property and casualty insurers. Allstate is the top holding, with a weighting of 9.66% and an annual expense ratio of just 0.35%. This is a no-brainer.
Patience was the word of the day Thursday as Anthony John Agnello discussed Verizon‘s (NYSE:VZ) big push into “4G” LTE networks. By the end of 2012, VZ will have spent $2 billion to be in 400 markets in the U.S. At present its network reaches approximately 260 million customers.
Building out the network ahead of expected demand, Verizon will be in a strong position once its spending spree comes to an end. At that point, you can expect the profits to flow nicely. AT&T (NYSE:T) and others are spending heavily as well. While I believe Verizon will be the big winner in this competition, not everyone agrees. Therefore, if you find yourself on the fence regarding this whole LTE thing, a better bet might be the Vanguard Telecommunication Services ETF (NYSE:VOX). The top two holdings in the fund are AT&T and Verizon, with approximately 24% each depending on the day. An additional 34 stocks make up the remaining 52%. At an expense ratio of 0.19%, you can’t get more focused for less.
Winding down the week, Susan J. Aluise noted the railroads’ upside potential and strong dividends. The four stocks she had in mind: Union Pacific (NYSE:UNP), Kansas City Southern (NYSE:KSU), Norfolk Southern (NYSE:NSC) and CSX (NYSE:CSX). Not being an expert on railroads, I’d have a hard time picking one out of the group. I’d be more tempted to buy Berkshire Hathaway (NYSE:BRK.B), whose ownership of Burlington Northern Santa Fe has brought Berkshire $2.25 billion in distributions in its first 13 months of owning the railroad.
If you’re not a Warren Buffett fan and prefer to go the ETF route, you’ll want to go with the iShares Dow Jones Transportation Average Index Fund (NYSE:IYT), which has three out of Aluise’s four stocks in its top 10 holdings (CSX is the exception). With just 21 holdings, IYT’s 0.48% expense ratio seems a bit high, but not so high that it should prevent you from owning it.
For price-conscious individuals, a second option is the Industrial Select Sector SPDR (NYSE:XLI) at 0.18%. The downside is that Union Pacific is the only railroad in the fund’s top 10 holdings, at 4.13%. If you’re high on railroads, as Susan is, this isn’t for you.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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