Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the semiconductor industry to thrive as the global economy recovers and manufacturing heats up again, the iShares PHLX SOX Semiconductor
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The semiconductor ETF's expense ratio -- its annual fee -- is a relatively low 0.48%.
This ETF's performance may seem worrisomely volatile. It lost roughly half its value both in 2002 and in 2008, but then gained 81% and 75%, respectively, in the years following those declines. Much of that is due to the semiconductor industry being cyclical. When our overall economy is slumping, so does its business. As with most investments, 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. Altera
Other companies hurt the ETF's returns last year, but could have a more positive effect in the years to come. Cree
The big picture
Demand for semiconductors isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.