Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the retail industry to grow amid a global economic recovery, the SPDR S&P Retail
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The retail ETF's expense ratio -- its annual fee -- is a rather low 0.35%.
This ETF has performed well, but it's also very young, with just more than four years on the books. It underperformed the S&P 500 in 2007 and 2008, then beat it by huge margins in 2009 and 2010. As with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. With a low turnover rate of 26%, 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, although they aren't necessarily what you first think of when you think "retail." Netflix
Other companies didn't add much to the ETF's returns last year, but could have an effect in the years to come. Walgreen
The ETF holds 64 different securities, and unlike many ETFs, it's not dominated by big companies. Some 42% of its holdings are mid-caps, and 34% small caps, which are typically able to grow faster than large caps. It's also an equal-weighted index, meaning that a smaller operator, such as Ulta, is roughly equal in its influence to a big gun such as Walgreen.
The big picture
Retail can be a cyclical arena, but it's never going away, and in the long run, a basket of retailers should grow in value. 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. For great ETF investing ideas, check out The Motley Fool's special free report, " 3 ETFs Set to Soar During the Recovery ."