Diversifying Through ETFs

Health Care

In the health-care sector, a large-cap domestic drug company makes up 3% of the client's portfolio, a big biotech company at 2% of the portfolio and the WisdomTree International Health Care Sector Fund (DBR Quote). The fund is heavy in the U.K. and Switzerland (both countries I want exposure to) and yields 2%, which is more than any other sector ETF I'm aware of. The client's exposure to health care is 14% vs. 12% for the S&P 500.

Technology and Telecom

Tech is not my favorite part of the market for ETF exposure, but this particular client is not a candidate for any single-stock risk in this sector. Therefore, she owns 6% in iShares Dow Jones Technology (IYW Quote), 2% in iShares Goldman Sachs Semiconductor (IGW Quote) and 2% in First Trust Dow Jones Internet Fund (FDN Quote).

I would rather have domestic exposure only in this part of the market. For now, I think that the cap-weighted nature of IYW is the way to go, as mega-caps Cisco (CSCO Quote) and Microsoft (MSFT Quote) have done quite well in this latest rally.

A fund that equal-weights -- for now, that's just the Rydex Equal Weight S&P Technology Fund (RYT Quote) -- seems like a good replacement in nine to 12 months if, as is usually the case, smaller companies rotate back into favor. I don't use Semiconductors HOLDRs (SMH Quote) because it's so concentrated in just a couple of stocks.

Telecom is a small component of the market, and this portfolio just uses Vanguard Telecom ETF (VOX Quote) with a 4% weight. I prefer it over iShares Dow Jones Telecom (IYZ Quote) because it is less concentrated in mega-caps Verizon (VZ Quote) and AT&T (T Quote).