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Mosey Into Midcaps: ETF Alternatives for Hot Stock Picks

Here's a few ways to bundle midcaps, doublers and other flavors into diversified funds

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As Berr points out, an investment in Carnival is a long-term proposition. With that in mind, an ETF alternative like the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD) makes sense. Hotels, restaurants & leisure stocks (Carnival among them) represent 13% of the portfolio’s 83 holdings. Because RCD is an equal-weight fund, Carnival will always (assuming it remains in the index) be an important part of this ETF. The only negative — it’s heavily weighted with retail stocks, which many analysts feel have had their day in the sun.


According to James Brumley, U.K. researchers are working on a universal flu vaccine that will eliminate the need for shots targeting multiple flu strains and will last longer than a year. Flu vaccines are a $7 billion business annually, so big firms like Sanofi (SNY) and Novartis (NVS) aren’t going to take this sitting down. Someone will need to manufacture this potential vaccine. Until such time, though, a firm like Sanofi — the market share leader — will continue manufacturing the stuff. Who the ultimate winner will be is really tough to determine. An ETF with Sanofi and some of the others would be a good hedge on your bet.

The best way to tackle this little dilemma without over-exposing yourself to pharmaceutical companies is to buy the Bldrs Developed Markets 100 ADR Index Fund (ADRD), a fund that invests in large caps based outside the U.S. but available here through ADRs. The 98-stock portfolio invests 16% of its assets in 13 healthcare stocks, including NVS with a weighting of 4.76% and SNY at 2.85%. Its performance since its inception in 2002 when compared to both the MSCI EAFE and S&P 500 isn’t terribly good, but its 30-day SEC yield of 2.6% and its 0.35% expense ratio are reasonable. I see ADRD as a good rest-of-the-world fund.

Noble Energy

Aaron Levitt was talking spinoffs on Sept. 26. Specifically, he sees Noble Energy’s (NE) pending split into two firms: one for ultra-deepwater oil rigs and the other for shallower seas. Management expects the IPO for the new, shallow-seas operation, to be completed by the end of next year. Analysts see the two businesses delivering as much as $3.1 billion in EBITDA annually, which greater than the existing two businesses combined. Furthermore, since Levitt views Noble’s stock as undervalued compared to deepwater competitor SeaDrill (SDRL), now is the time to buy.

I’m assuming that when the spinoff occurs next year, the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) — which holds Noble Energy at a weighting of 2.34% — the number of holdings in the ETF will go from 42 to 43. What I’m less certain about is whether either business will remain part of the S&P 500 once the overall business has shrunk in size sometime in 2014. It’s important only if you want to own both stocks after the separation. Otherwise, you’re simply owning RYE until the separation occurs and the value is unlocked.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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