Make Money in Growing Recreation Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the leisure and entertainment arena to heat up as our global economy eventually improves and people are more eager to spend, the PowerShares Dynamic Leisure & Entertainment ETF (NYSE: PEJ) 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 lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.63% -- higher than many ETFs, but still considerably lower than the typical stock mutual fund.

This ETF has outperformed the S&P 500 over the past five years, although it underperformed the S&P SuperComp Hotels, Restaurants & Leisure Index. 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 leisure and entertainment stocks did well over the past year. Buffalo Wild Wings (Nasdaq: BWLD), one of the nation's fastest-growing food chains, gained 51%. McDonald's (NYSE: MCD) didn't -- and can't -- grow that briskly, but its stock still soared, rising 40%. Interestingly, Buffalo Wild Wings recently planned to expand by 69 locations in 2012, versus 1,100 new units for McDonald's. But percentages matter, and the Buffalo gain amounts to 13%, compared to just 3% for Mickey D's.

Meanwhile, priceline.com (Nasdaq: PCLN) advanced 10% as it finds great success abroad. About three-quarters of its bookings are now generated internationally -- and its international operations are growing faster than its domestic side. A weak dollar will help it even more.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Travelzoo (Nasdaq: TZOO), part travel portal, part daily deal purveyor, plunged 38% over the past year, reporting disappointing earnings. Investors once excited about daily-deal businesses such as Groupon have rightfully cooled off on them, realizing that they sport few competitive advantages.

The big picture
Demand for leisure and recreation 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 five ETFs that could soar in 2012. And if you're looking for some great investments beyond ETFs, consider these 12 dividend stocks for 2012.