Even when there's a plethora of mutual funds to select from, mutual fund analysts sometimes can't come up with the right picks. Rather than get discouraged, consider adding exchange-traded funds (ETFs) to your portfolio to give it the right mix and exposure.
ETFs, say experts, have emerged in areas that have few if any traditional index alternatives. They can offer low costs and tax-efficient, diversified and transparent exposure to the segment of the market you want, but you have to be selective.
There are several categories that offer "decent" ETFs. Among them are:
natural resources — More than 26 ETFs in this category came out in 2006. But keep in mind, say the experts, that many natural resources ETF "are too narrowly focused to be of much practical use, and they're expensive for index funds." Still, funds in this category, they say, can provide a portfolio with diversification and inflation protection.
Japan — The experts advise assessing how much exposure your portfolio has to Japanese stocks before seeking an ETF in this group because many funds in the Japan stock category have had a lot of manager turnover, have high expenses or poor histories of delivering consistent risk-adjusted returns. Still, there are a few viable options to consider.
diversified Pacific/Asia — The experts caution that "many diversified Pacific/Asia funds have significant helpings of emerging markets or load up on one particular country, which can make them more volatile than diversified foreign funds."
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small cap value and blend — ETFs are attractive options in this market, say the experts, "because they are index funds that in most cases do not have to worry about asset bloat.
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