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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some retail stocks to your portfolio, the PowerShares Dynamic Retail ETF (NYSE: PMR  ) 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.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.63 %. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed  rather well, beating the world market over the past three and five years. 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.

Why retail?
Retail can be somewhat cyclical, with many retailers suffering during our prolonged economic slump. But others prosper during such times, as many consumer goods purchases can't be put off. (Think, for example, of shampoo, groceries, and school notebooks.) And right now is a promising time, as our economy is showing signs of recovery.

More than a handful of retail companies  had strong performances over the past year. Brown Shoe (NYSE: BWS  ) surged 104%, despite posting very slow  revenue growth in recent years, and a dearth of earnings. Its name may not ring a bell, but it operates more than 1,300 stores  under the Famous Footwear and Naturalizer names. Its success was in part due to cost-cutting as well as to the fact that it's a discounter in a belt-tightening environment.

Chico's FAS (NYSE: CHS  ) soared 74%. The company was once quite a market darling -- consider that while its 10-year average annual gain is about 7%,  its five-year average is 21%. Part of its success is tied to its not discounting as much as some peers. Some investors would like to see its revenues and return on equity grow a little more.

Clothing retailer Ross Stores (Nasdaq: ROST  ) gained 14%, occupying a sweet spot on the spectrum between deep discounters (not generally known for quality) and higher-tier chains. Its revenue growth has averaged about 9% annually in recent years and while earnings growth has been slowing, it's still in the double digits. The company's December sales topped  expectations.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Safeway (NYSE: SWY  ) , for example, slumped 17%, operating in the tough, low-margin grocery business. The company's longtime CEO is retiring , which adds more uncertainty to its outlook. Safeway has some concerns, such as a hefty debt load and powerful competition, but it's also not in as dire shape as some peers. Some wonder whether it will end up acquired. A plus is its 4% dividend.

The big picture
Demand for retail 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.

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