But if you’re going to go “cigar butt” investing, you are wise to do so with a diversified group of holdings rather than one or two possibilities. The Guggenheim Shipping ETF (SEA) is a group of 25 shipping stocks including TNP — one of Melvin’s recommendations — at a weighting of 1.7%. Its fees aren’t cheap at 0.65% annually, but it’s your best course of action if you feel shipping stocks are worth a second look.
Last week, InvestorPlace Editor Jeff Reeves discussed GSV Capital (GSVC) — a closed-end fund that invests in non-public tech companies like Twitter and Dropbox. Its most famous investment is Facebook (FB), which it invested in prior to the May 2012 IPO. In July, GSVC sold half its position in the social media giant, so Facebook now represents less than 2% of its overall portfolio.
With Twitter accounting for 15% of its investment portfolio and an IPO in the distant future, GSVC should continue experiencing significant capital appreciation. Just because GSVC has more upside potential, though, doesn’t mean you shouldn’t consider an ETF alternative to mitigate the risk.
GSVC is a micro-cap stock with a great deal of volatility. To protect yourself from the specific company risk associated with investing in just one stock, buy the PowerShares Zacks Micro Cap Portfolio (PZI). It’s a group of 400 stocks including GSVC, its second-largest holding.
Keep in mind that its annual expense ratio is 0.91% … so only invest in PZI if you want exposure to a lot of micro caps.
In a recent article, Lawrence Meyers once again expressed his love for debt collectors like Portfolio Recovery Associates (PRAA) and Encore Capital Group (ECPG). He thinks they are fantastic businesses that generate lots of cash flow, and is putting his money where his mouth is.
Still, while both of these businesses have cheap money available at the moment, it won’t always be that way. Meyers knows this; when the worm turns and interest rates rise, he’ll be long gone.
To avoid having to time this, you could instead look at the PowerShares S&P SmallCap Financials Portfolio (PSCF), which represents financial services companies held in the S&P SmallCap 600. It has 112 stocks, with PRAA as a top 10 holding and ECPG exposure as well.
The portfolio gives you a good mixture of banking, investment services, insurance and real estate finance stocks, but all of the small-cap variety and for a nice annual expense ratio of 0.29%.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.