Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect companies involved in modernizing the electrical grid to prosper over time as new meters are installed, infrastructure is updated, and alternative energies are accommodated, the First Trust NASDAQ Clean Edge Smart Grid Infrastructure ETF (NYSE: GRID) 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 Smart Grid ETF's expense ratio -- its annual fee -- is 0.70%. That's higher than many ETFs, but also considerably lower than the typical stock mutual fund. (The fund is very small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.)

This ETF doesn't have much of a performance to evaluate yet, as it's just a few years old. It underperformed the market in the past two years, but 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 28%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Relatively few smart-grid-related companies had strong performances over the past year. General Electric (NYSE: GE) bucked the negative trend, rising 5%, but it also has a heck of a lot of non-energy-related businesses under its umbrella. Its diversification within energy is attractive, too, as it's involved in solar, nuclear, wind, and other powers. The company struggled during the recent credit crisis, but it's made a good recovery, upping its dividend (recently yielding 3.5%) and beating Wall Street expectations.

Companies that didn't do as well last year could see their fortunes change in the coming years. Power-One (Nasdaq: PWER), down 53%, looks bargain-priced to some, and like a value trap to others, as it isn't generating much free cash flow. Bulls are optimistic about the company's new inverters, though, as they may be incorporated in solar modules, bringing their cost down. They also point out that Power-One's technology is helping companies such as Facebook keep expenses down.

Canadian oil and gas giant Suncor Energy (NYSE: SU) shed 22%, but offers a longtime, fast-growing dividend and is a significant player in oil sands. Rare Element Resources (AMEX: REE), down 41%, has many more investors bearish on it. Various rare-earth minerals are used in electric-vehicle batteries, wind turbines, oil refining, and more. The stock has been very volatile, and investors should be prepared for big jumps and drops, as the company announces mineral finds and then revises them.

The big picture
Demand for energy 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 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these 12 Dividend Stocks for 2012.