Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the software industry to thrive as our demand for more and more electronic products and services continues, the PowerShares Dynamic Software ETF
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The software ETF's expense ratio -- its annual fee -- is 0.63%, considerably lower than the typical stock mutual fund.
This ETF has performed rather well, beating the S&P 500 over the past three and five years, on average. 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.
What's in it?
Several of this ETF's components made strong contributions to its performance in 2011. Cadence Design Systems
Microstrategy
Other companies, such as BMC Software and Medidata Solutions, didn't add to the ETF's returns this year, but could have an effect in the years to come.
The big picture
Demand for software isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 Stocks for Your Retirement Portfolio.