Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the banking industry to thrive over the long run as companies improve their credit quality and find ways to remain profitable amid new regulations, the SPDR KBW Bank ETF
ETFs often sport lower expense ratios than their mutual fund cousins. The banking ETF's expense ratio -- its annual fee -- is a relatively low 0.35%.
This ETF has performed poorly over the past five years, due largely to the credit crisis and recession. But healthy beaten-down banks are likely to spring back to life. 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 16%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Few of this ETF's components had strong returns over the past year. US Bancorp
Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Hudson City Bancorp
The big picture
Demand for banking services isn't going away anytime soon, and the public's growing disdain for big banks bodes well for smaller ones (and credit unions). 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.