Many experts on Wall Street and in the media don’t pay much attention to small cap stocks. They’re smaller, more obscure companies, they don’t usually involve large sums of money, and they aren’t as glamorous as the bigger caps available to invest in today. But some experts have argued that the lack of attention to small caps is unwarranted. Many argue that small caps offer much more opportunity for growth. Along with increased opportunity for growth comes increased opportunity for loss. When deciding if small caps might have a place in your portfolio consider both sides. Small cap stocks are a nickname for stocks of companies that typically have a small market capitalization. (Usually somewhere between $2 million and $300 million. Definitions vary.) Market capitalization, simply put, is the price of the company’s stock multiplied by the number of shares outstanding. It’s basically the value the market places on a company. Large caps are more glamorous to some experts because they are perceived to be more reliable and safe. The prevailing assumption is blue chip stocks are strong and steady. But as Enron and others have shown, that isn’t always the case. Risk exists throughout the market, and with reduced risk, comes reduced growth. It may not have taken a stock like Wal-Mart long to double in growth, but for them to do so now, as a large cap stock, would be almost unheard of. In fact, Wal-Mart itself started as a small cap stock before becoming the world’s biggest retailer. A small cap’s biggest advantage and disadvantage is its potential. Investing in small caps means you should be even more cautious. Any money you invest in small caps should be money you’re prepared to expose to a higher degree of risk. Small companies often have narrower markets and limited financial resources, so investments in these stocks present more risk than investments in those of larger, more established companies Small cap stocks are also more difficult to research and choose precisely because of their obscurity. This means more time and effort must be taken by you and your financial professional. This is where a niche opens up for individual investors. Several small cap investments do exist and offer opportunities for investment. If an investor gets in at the ground level, the opportunity for growth exists if larger, institutional investors later pick the same stock and buy a great deal of shares. Wall Street and the media may not pay attention to small cap stocks, but that doesn’t mean they aren’t a possible addition to your portfolio. Because of their relative obscurity in the markets today, they allow not only a great deal of growth but also an increased risk. In the end though, Wall Street and the media aren’t in charge of your portfolio. You and a financial professional are. Every investment decision you make should be carefully planned with a professional to make certain that it has the proper place in your portfolio. Now you have one more option to consider as you attempt to reach your financial goals.

For investors interested in capitalizing on increased demand for basic utilities, there are a number of ETFs that own utility stocks. Of the dozen or so utility ETFs available today, three have been around for a little more than eight years. These funds yield just less than 3%, providing a steady if not spectacular yield. A closer look at these three funds, which have low fees and some of the highest long-term returns, should help you choose the best one for your particular needs.

Comparing utility ETFs
Although the three funds each track different indexes of utility stocks, they include many of the same stocks. The Utilities Select Sector SPDR (AMEX: XLU), for instance, tracks the Utilities Select Sector Index, which includes companies from the electric utility, multi-utility, independent power production, energy trading, and gas utility industries. That fund holds 31 stocks, with top holdings Exelon (NYSE: EXC), Southern (NYSE: SO), and FPL Group (NYSE: FPL). The fund has returned 18.6% over the past five years.

The iShares DJ Utility Index (AMEX: IDU) tracks the Dow Jones U.S. Utilities Sector Index, which includes companies involved in electricity and gas, water, and multi-utilities. The iShares fund uses a representative sampling strategy to track the index. Top holdings include Exelon, Southern, and Dominion Resources (NYSE: D). The fund has an average five-year return of 18%.

A slightly different model
Although the Utilities HOLDRs (UTH) trades like an ETF, it behaves a bit differently. HOLDRs are trusts and not registered investment companies, which means the underlying stocks included in the HOLDR do not change except for spinoffs, or mergers and acquisitions. The Bank of New York is the trustee.

When an issuer spins off a new security, an owner of a HOLDR receives that security in their brokerage account outside of their HOLDRS investment. The utility HOLDR has 18 companies in its portfolio, including Exelon, Entergy (NYSE: ETR), and Southern. It clocks in with 14.5% performance over the past five years.

Fund prospects
Utility stocks have risen sharply in the past five years, which makes investors wonder whether they have much upside left. On one hand, utility companies have big plans to respond to a number of factors affecting them. With populations increasing, utilities will have to make large capital investments to increase capacity. In addition, greater demand for green-friendly energy, along with high oil prices, will push utilities to add non-petroleum-based production facilities. Those large capital expenditures could pressure stock prices in the short term.

On the other hand, utilities are fairly recession-proof. Because they usually pass price hikes on to consumers, they’re insulated from the direct effects of rising energy prices. And although consumers feel the pinch from higher costs, most generally will try to keep the heat and lights on. That should give utilities an edge over discretionary consumer goods in difficult times.

Portfolio fit?
Solid earnings growth and stability can make utility ETFs attractive as a piece of an overall portfolio. So which one is best for you?

The Select SPDR and the iShares Utility funds are similar in performance, and both are well ahead of the HOLDRs. Although it is a tough choice between the two performance leaders, the SPDR drew me in with its lower expense ratio of 0.23%, versus 0.48% for the iShares fund.

In addition, with $2.3 billion in assets and an average of more than 5 million shares trading each day, the Select SPDR has the edge in liquidity. In contrast, the iShares fund has assets of around $830 million and average volume of just 65,000 shares.

Regardless which fund you decide is best for you, however, utility stocks are good for keeping your portfolio warm.

Introduction

One of the most enduring questions in finance is whether securities prices are set in an informationally efficient manner. Dozens of academic studies over the years have reached different conclusions on the issue. Since there is a lot of money at stake, the debate can become quite heated. If securities prices are informationally efficient, then the fees charged by active managers are not justified.

This paper is an attempt to pull together some of the pertinent evidence on the issue. The literature is so broad that it cannot be adequately surveyed in a single article. Excellent surveys already exist in certain areas, and those areas will not be reexamined here. The primary focus of this survey is the performance of professional money managers. This seems to be the most practical aspect of the abstract concept of informational efficiency. Most people are interested in the issue only to the extent that it affects what they do with their own money.

The next section describes the characteristics of an informationally efficient market. Following that is a discussion of the empirical evidence on money manager performance. A discussion of how much information is reflected in prices and a brief conclusion brings things to a close. Throughout the discussion, the emphasis is on the stock market. This is the most thoroughly studied of the securities markets, and it is also the market in which inefficiencies are most likely to be uncovered.