Exchange-traded funds offer a convenient way to invest in one of the critical building blocks of our information age: the semiconductor industry. And to me, none of the offerings in this sector looks more promising than the SPDR S&P Semiconductor (NYSE: XSD) ETF.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins, but some ETFs still take a fat chunk of your money each year. The SPDR Semiconductor ETF doesn't; its expense ratio (annual fee) is a relatively low 0.35%.

The ETF's performance has been mixed, but it's also very young, with just four years on the books. It got hit hard in 2008, seeing its shares cut nearly in half, but then doubled in value in 2009. So far this year, it's posted about a 10% return. We can't expect outstanding performances in every quarter or year, though. Investors with conviction need to wait for their holdings to deliver. With a low turnover rate of 19%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of the components of the SPDR Semiconductor ETF have made strong contributions to its performance this year, with Atmel (Nasdaq: ATML) and Skyworks Solutions (Nasdaq: SWKS) up more than 130% and 80%, respectively. Specializing in touchscreen controllers, among other things, Atmel has been soaring thanks to high demand for smartphones and tablet computers, and it's expanding into higher-margin lines. Skyworks has benefited from rising sales of iPhones and iPads, and it's lining up work with companies such as Broadcom to get its chips into Blu-ray players and game consoles. 

Other companies have yet to boost the ETF's fortunes this year, but could have an effect in the year to come. LSI (NYSE: LSI) is down a little this year, but its growing focus on storage technology might bode well for its future. NVIDIA (Nasdaq: NVDA) has fallen more than 25%, but many fund managers have been snapping it up. Even insiders hold 4% of the graphics-chip specialist.

The SPDR Semiconductor ETF isn't the only ETF that focuses on semiconductor stocks. But it invests in a more balanced fashion than many of its peers, with each of its 25 stocks representing between 3% and 5% of the fund's value. That means that while the others might include LSI, but only allocate 1% or so of their value to it, the SPDR ETF gives it around 4%.

The big picture
Like many ETFs, this one doesn't include every company that could possibly fit within the space. Still, it covers a broad range, including solar-energy developer First Solar and LED specialist Cree (Nasdaq: CREE), which some worry may be overincreasing its capacity.

Demand for chips will grow as our economy recovers, and the explosive smartphone arena has already rewarded many investors. A well-chosen ETF can grant you instant diversification across the industry.

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Longtime Fool contributor Selena Maranjian owns shares of First Solar. First Solar is a Motley Fool Rule Breakers pick. NVIDIA is a Motley Fool Stock Advisor recommendation. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.