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ETF Specialist

Investing in Johnson & Johnson While Still Enjoying Diversification

ETFs provide a great means to gain exposure to this battered health-care giant.

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Investors who like a given stock and have a relatively high degree of conviction in that single company have a choice: They can invest directly in that single stock, or they can buy a sector exchange-traded fund in which that company occupies such a large position.

The ETF structure can smooth out the single-stock risk and provide diversification--even for an investor with fairly strong conviction in a name. On the other hand, investing in the lone stock, can expose an investor to more volatility and event risk, with no diversification whatsoever. As my colleague John Gabriel pointed out in a previous article, investors should always be able to identify what their specific investment thesis is. For long-term core positions, there's a good chance that investors can get their desired exposure through ETFs. In the case of a shorter-term tactical bet (or a satellite position), the line can get blurred more, and an individual stock might be a better choice for an investor. But the key is always to match one's thesis with the investment vehicle most closely matching its conclusion.

Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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