Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the oil and gas industry to keep thriving, and gas prices to keep rising, the SPDR S&P Oil & Gas Exploration & Production (NYSE: XOP) ETF 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 several dozen of them.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR Oil and Gas ETF's expense ratio -- its annual fee -- is a relatively low 0.35%.

This ETF has generally performed well, but it's also very young, with just three years on the books. It got hit hard in 2008, as its shares plunged 43%. But it roared ahead by 40% in 2009, and gained 29% in 2010. 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 reasonably low turnover rate of 33%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Valero Energy (NYSE: VLO) and Conoco Philips (NYSE: COP) each rose about 32%, and both seem poised to do well in 2011. Valero's investing heavily in ethanol to complement its high-quality oil refineries, while ConocoPhillips has been selling off assets and trimming its debt over the past year or two.

Other companies didn't add much to the ETF last year, but could have an effect in the year to come. Activist investor Carl Icahn now owns a sizable chunk of Chesapeake Energy (NYSE: CHK), and he may soon be pushing the company to unlock more value. And low-cost gas operators Range Resources (NYSE: RRC) and Southwestern Energy (NYSE: SWN) may get acquired by bigger players.

The SPDR S&P Oil and Gas ETF isn't the only ETF that focuses on its industry. But it invests in a more balanced fashion than many of its peers, with its holdings equally weighted, instead of being weighted by market cap. Thus, the bigger companies don't overshadow the smaller ones.

The big picture
Demand for oil and gas
isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.

ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, " 3 ETFs Set to Soar During the Recovery ."

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Selena Maranjian owns shares of Chesapeake Energy. Chesapeake Energy is a Motley Fool Inside Value recommendation. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.