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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect retailers to thrive as our economy eventually gets back on track, the SPDR S&P Retail ETF (AMEX: XRT ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. This retail ETF's expense ratio -- its annual fee -- is a low 0.35%.
This ETF has performed rather well, beating the S&P 500 handily over the past three and five years, on average. But it's also very young, with just a few years on the books. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
What's in it?
Several of this ETF's components made strong contributions to its performance since 2011 began. 99 Cents Only Stores (NYSE: NDN ) , up 36%, has been benefiting from our wretched economy that has more folks than usual seeking deep discounts -- and speculation that it might be bought out has also propped up shares. Barnes & Noble (NYSE: BKS ) , up 14%, is struggling as a brick-and-mortar bookseller in these electronic days, but it's also pinning a lot of hope on its new Android-based Nook Tablet, designed to compete with Apple's iPad and with Kindles, as well.
Other companies haven't added as much to the ETF's returns this year, but could have an effect in the years to come. Sears Holdings (Nasdaq: SHLD ) has dropped more than 20%, as it has far more debt than cash. It's closing stores and posting losses, too.
Clothing retailer Aeropostale (NYSE: ARO ) , down 40%, was whacked by surging cotton prices and financially pressured customers, but it remains a well-managed company. Brown Shoe (NYSE: BWS ) , down 45%, is starting to see revenues rise in recent quarters, though its profit margins remain thin.
The big picture
Retail demand isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.