Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some volatile stocks to your portfolio, the PowerShares S&P 500 High Beta ETF (NYSEMKT:SPHB) 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.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF’s expense ratio — its annual fee — is a relatively low 0.25%. The fund is on the small side, 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 is too young to have a sufficient track record to assess. (It did underperform the S&P 500 over the past year, and beat it in 2012.) 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 high volatility?
One reason to be drawn to volatile stocks is that they tend to do especially well in bull markets — and our global economy is starting to pick up steam, with the stock market rising in recent years. Still, more than recommending that you seek out high-volatility stocks, I’d urge you to just not discount them. Some folks fear volatility, but remember that for most of us, it’s long-term performance that matters most, not short-term zigs and zags.
More than a handful of high-volatility stocks had strong performances over the past year. Micron Technology, Inc. (NASDAQ:MU) , for example, surged 20%, with bulls seeing growth in tablets and smartphones driving demand for memory chips. The stock soared to a 52-week high recently when Micron Technology, Inc. (NASDAQ:MU) posted its second-quarter earnings and lower costs and rising margins hinted of a return to profitability soon. Micron Technology, Inc. (NASDAQ:MU)’s purchase of Japanese manufacturer Elpida seems promising, boosting its capacity and its relationship with Apple Inc. (NASDAQ:AAPL).
Genworth Financial Inc (NYSE:GNW) gained 16%, in part on the recovering housing market, which will boost its mortgage insurance business, even as it distances itself from that. (A suggestion in Barron’s that the stock is cheap also helped.) Genworth Financial Inc (NYSE:GNW)’s long-term care insurance is also not a great profit driver lately, despite some competitors having exited that market. In addition, the company has warned that if interest rates remain low in the coming years, that will reduce profitability and hurt its turnaround efforts.
