Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect nimble, undervalued small caps to enjoy great growth in the years ahead, the Vanguard Small Cap Value ETF (NYSE: VBR) 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 simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF's expense ratio -- its annual fee -- is a very low 0.23%.

This ETF has performed rather well, handily beating the S&P 500 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.

With a low turnover rate of 25%, 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. Ares Capital (Nasdaq: ARCC), up 22% over the past year on successful lending to small businesses, has investors bullish about its acquisition-related increase in assets under management. Similarly, American Capital (Nasdaq: ACAS) has done well, rising 94% over the past year.

Mining specialist Coeur D'Alene Mines (NYSE: CDE) jumped 89% as it boosted its silver and gold outputs. A dispute with Paramount Gold (AMEX: PZG) might also work to the company's benefit if the judgment falls in Coeur D'Alene's favor.

American Capital Agency (Nasdaq: AGNC) gained about 29% over the past year, and sports a mind-bending dividend yield recently approaching 20%! But be careful -- it might sink under the weight of its hefty leverage, especially if the U.S. doesn't raise its debt ceiling, and the nation defaults.

Other companies didn't add quite as much to the ETF's returns last year, but could have an effect in the years to come. W.R. Grace (NYSE: WR) rose about 19%, and stands to benefit from increased construction and refinery activity, thanks to the specialty chemicals it offers those industries.

The big picture
It's always good to hold some small caps in your portfolio, and seemingly undervalued ones are positioned to gain 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. 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 holds no position in any company mentioned. Click here to see her holdings and a short bio. 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.