Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the financial services industry to thrive as the global economy rebounds, the iShares Dow Jones U.S. Financial Sector
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares Financial Sector ETF's expense ratio -- its annual fee -- is a relatively low 0.48%.
I'd like to tell you that this ETF has a strong track record, but it doesn't. It has underperformed the S&P 500 over the past one, three, five, and 10 years. 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. The financial sector's poor performance has actually made some investors more intrigued by this sector; they figure these stocks are due to perform well soon. After all, their forward-looking price-to-earnings (P/E) and price-to-cash-flow ratios are lower than those of the S&P 500.
With a low turnover rate of 18%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
A few of this ETF's main components made strong contributions to its performance over the past year. Insurer AFLAC
Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come -- or not. Credit card giant Visa
The big picture
Despite all that, the financial sector still has plenty of fans, who may be proved right. Demand for financial services 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 ."
Longtime Fool contributor Selena Maranjian owns shares of eBay. The Motley Fool owns shares of AFLAC. Motley Fool newsletter services have recommended Visa, AFLAC, and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.