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An exchange traded fund [ETF] is one of the easiest ways to achieve diversified portfolio. ETFs have been around since the early 90s, but recent events increased their popularity. An ETF consists of a basket of securities, which are bundled under a single ticker. Thus, buyers of an ETF get an immediate exposure to all stocks within this ETF's portfolio. From this perspective, an ETF looks like a mutual fund. However, compared to mutual funds, exchange traded funds have several advantages. Their expense ratios tend to be much lower. There is no minimum investment requirement. They can be purchased and sold, just like other stocks. Most importantly, they are passively managed, where the turnovers and turnover-related costs are minimal.

Most ETFs track a general index, such as S&P 500, Russell 1000, or MSCI. However, there are also several ETFs which concentrate on high-yield sectors or cherry pick the high-yielders from a large set of stocks. While I think any informed individual should be able achieve a diversified portfolio from individual stocks, some investors prefer ETFs. It is okay to invest in ETFs with low expense ratios, but one needs to be careful to choose the right ETF at the right price. Here is a brief analysis of 5 ETFs. I think 4 of them are worth to consider, where one does not look like a good deal.

iShares S&P 500 Value Index (NYSEARCA:IVE)

  • Market Cap: $4.31 billion
  • Dividend Yield: 2.18%
  • Short Float: 0.16%
  • Year-To-Date Return: 10%

iShares S&P 500 Value Index ETF tracks the yield and price performance of the S&P 500 Value Index. As such, this ETF offers a well diversified exposure to relatively higher yield stocks within the S&P 500 index. The current expense ratio is only 0.18%. Top 5 stocks in this ETF include General Electric (NYSE:GE), AT&T (NYSE:T), Wells Fargo (NYSE:WFC), Pfizer (NYSE:PFE), and JP Morgan Chase (NYSE:JPM). The top 5 stocks constitute only 15.76% percent of the portfolio. The fund underperformed the S&P 500 Index, primarily due to its relatively high exposure to financial stocks. However, I think financials could be the top performers of this year, lifting the performance of this ETF.

iShares Dow Jones US Real Estate (NYSEARCA:IYR)

  • Market Cap: $3.2 billion
  • Dividend Yield: 3.53%
  • Short Float: 45.14%
  • Year-To-Date Return: 11%

iShares Dow Jones US Real Estate ETF tracks the yield and price performance of the Dow Jones U.S. Real Estate Index. As such, this ETF primarily invests in the real estate holdings and real estate investment trusts. The current expense ratio is 0.47%. Top 5 stocks in this ETF include Simon Property Group (NYSE:SPG), American Tower Corporation (NYSE:AMT), Public Storage (NYSE:PSA), Equity Residential (NYSE:EQR), and Ventas Incorporated (NYSE:VTR). The top 5 stocks constitute 25.82% percent of the portfolio. In the last 10 years, this fund substantially outperformed the S&P 500 Index with an annualized return of 8.8%. While it slightly lagged the Dow Jones U.S. Real Estate Index in this year that is probably due to a minor tracking error and a modest expense ratio. Note that the short float is extremely high. I think the short-sellers are either hedging their individual stock positions, or they are missing the overall macroeconomic environment. The low interest atmosphere is expected to last for a long period, which will make it easier to borrow. The reduced interest-costs of real estate developers might push these stocks higher.

iShares S&P U.S. Preferred Stock Index (NYSEARCA:PFF)

  • Market Cap: $8.39 billion
  • Dividend Yield: 6.05%
  • Short Float: 0.40%
  • Year-To-Date Return: 9.8%

iShares S&P U.S. Preferred Stock Index ETF tracks the yield and price performance of the S&P U.S. Preferred Stock Index. As such, this ETF primarily invests primarily in the preferred stocks listed in the equity markets. Preferred stocks are not as liquid as common stocks, but they tend to offer higher dividends. The current expense ratio is 0.48%. Top 5 preferred stocks in this ETF include HSBC Holdings Preferred, General Motors CV, Barclays Bank Preferred (BCSPRD), Gmac Cap Tr I Preferred, and Wells Fargo Preferred. The top 5 stocks constitute only 9.94% percent of the portfolio. In the last 3 years, this fund substantially outperformed the S&P 500 Index with an annualized return of 25.27%. Apparently, preferred stocks tend to outperform common stocks. The year-to-date return slightly lagged broad market indices, but I expect this ETF to be an outperformer in this year as well.

iShares Dow Jones Select Dividend Index (NYSEARCA:DVY)

  • Market Cap: $6.75 billion
  • Dividend Yield: 3.37%
  • Short Float: 0.28%
  • Year-To-Date Return: 5%

iShares Dow Jones Select Dividend Index ETF tracks the yield and price performance of the Dow Jones U.S. Select Dividend Index. As such, this ETF primarily invests in the securities of underlying index as well as the depository receipts representing the securities in the underlying index. The current expense ratio is 0.40%. Top 5 stocks in this ETF include Lorillard Inc. (NYSE:LO), Lockheed Martin (NYSE:LMT), Chevron (NYSE:CVX), CenturyLink Incorporated (NYSE:CTL), and Entergy Corporation (NYSE:ETR). The top 5 stocks constitute only 12.81% percent of the portfolio. In the last 3 years, this fund outperformed the S&P 500 Index with an annualized return of 23.83%. Apparently, high-dividend stocks tend to outperform other stocks. The year-to-date return slightly lagged broad market indices, but I expect this ETF to be an outperformer in this year as well.

ALPS Alerian MLP ETF (NYSEARCA:AMLP)

  • Market Cap: $3.03 billion
  • Dividend Yield: 6%
  • Short Float: N/A
  • Year-To-Date Return: 1.7%

ALPS Alerian MLP ETF tracks the yield and price performance of the Alerian MLP Infrastructure Index. As such, this ETF primarily invests primarily in the master limited partnerships, most of which operate as pipeline operators. The current expense ratio is 1.40%. Top 5 stocks in this ETF include Enterprise Products Partners (NYSE:EPD), Kinder Morgan Energy Partners (NYSE:KMP), Magellan Midstream Partners (NYSE:MMP), Energy Transfer Partner (NYSE:ETP), and Plains All American Pipeline (NYSE:PAA). This ETF is highly concentrated, as the top 5 stocks constitute 40.17% percent of the portfolio. AMLP is a relatively new ETF. It was established in late 2010.

Master limited partnerships are among the top choices of income-oriented investors. MLPs are not tax exempt, but their distributions can be registered as capital depreciation, effectively reducing their tax base. Thanks to this favorable tax status, these companies offer substantial distributions to the unit holders. Unfortunately AMLP is registered as a corporation. As such, the company does not enjoy the tax-free status of master limited partnerships. That explains the huge gap between Alerian MLP Infrastructure Index, and Alerian MLP ETF. The company is withholding a substantial amount of the capital gains for tax purposes. Surely, the gap between the ETF and the underlying index could diminish if MLPs start making losses. But, then, what it is the point of investing in this ETF if it can catch up with the underlying only if the index goes down? I suggest investors not to fall into the 6% yield trap of this ETF, and invest in individual securities instead. You will not only avoid the relatively high expense ratio of 1.4%, but probably obtain much better results in the long-term.

Source: 4 ETFs To Consider And One To Avoid