Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some semiconductor stocks to your portfolio but don't have the time or expertise to hand-pick a few, the PowerShares Dynamic Semiconductors ETF (NYSEMKT:PSI) could save you a lot of trouble. Instead of trying to figure out which semiconductor stocks 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. This ETF, focused on semiconductor stocks, sports an expense ratio -- an annual fee -- of 0.63%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This semiconductor stocks ETF has underperformed the world market over the past three and five years, but it's worth remembering that the future counts more than the past. 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.

Why semiconductor stocks?
Our growing world population will demand more and better high-tech products and services over time, boosting the business of successful technology-oriented companies. And these days, much of the technology we use is built on semiconductors, so the long-term prospects for many semiconductor stocks are solid.

More than a handful of semiconductor stocks had strong performances over the past year. Memory giant Micron Technology (NASDAQ:MU) surged some 220%, for example, and remains compelling to many. Its acquisition of Japanese company Elpida has made it the world's second-largest DRAM maker, with greater pricing power and an enhanced relationship with Apple . Bears haven't liked recent net losses and shrinking margins, and they want to see its solid-state drive business grow. The company's recently reported fourth quarter was strong but still left some confused. Analysts at Wells Fargo, for example, downgraded the stock on valuation concerns, while upping their projections for Micron.

LED lighting specialist Cree (NASDAQ:CREE) popped 113%, but that includes yesterday's sharp drop following a quarterly earnings report that featured solid revenue growth but lowered projections from management. Cree has been turning in double-digit revenue growth for several years, and the LED market is expected to grow by about 34% annually over the next few years, eventually totaling nearly $100 billion. Meanwhile, Cree's bulbs have received an Energy Star rating that will permit them to qualify for rebates from utility companies. LED bulbs will be offered in Wal-Mart stores, which could constrict profit margins. Cree's steep valuation may be investors' biggest concern.

Applied Materials (NASDAQ:AMAT) jumped 66% and yields 2.2%, which includes a 10% dividend hike earlier this year. The company is buying Tokyo Electron, making it even more of a powerhouse in chip equipment. (Investors might want to wait until the deal is actually done before counting chickens, though.) Bulls expect Applied Materials to benefit from an increase in global semiconductor demand, but bears worry about weakness in the PC market. Its third quarter, reported in August, featured $2 billion in new orders, but that was 12% below the previous quarter's levels.

NVIDIA (NASDAQ:NVDA), one of the biggest mobile-application processor companies, gained 20% and sports a new 1.9% dividend yield. It has had some trouble competing with Qualcomm and others in mobile processors, but its new Tegra 4 chip has some hopeful. Meanwhile, the company is building its presence in automobiles, too. NVIDIA's entry into the mobile IP licensing business has some hopeful and many like its strong position in gaming, though others balk at its forward P/E of 18. It has recently introduced a tablet of its own, though some question the wisdom of that.

The big picture
Consider adding semiconductor stocks to your portfolio. A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in it -- and profiting from it -- that much easier.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.