Make Money Off the Smartphone Revolution -- the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the smartphone industry to thrive over time as our world's growing population increasingly demands new and better phones, the First Trust NASDAQ CEA Smartphone Index ETF (NAS: FONE) 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 First Trust ETF's expense ratio -- its annual fee -- is 0.70 %. The fund is very 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 ETF is too young to have a meaningful track record to assess. Still, it's the future that counts more than the past, and 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 smartphones?
This industry has been experiencing explosive growth, as evidenced by Apple's (NAS: AAPL) wild success and meteoric rise. (It's up 56% over the past year and has averaged annual growth of 56% over the past decade, too.) Android-based devices are also selling briskly, but the competition, and the success of some winners, has led to the downfall of other companies. Still, plenty of those companies could see their fortunes change in the coming years.

Research In Motion (NAS: RIMM) , developer of the revolutionary BlackBerry phones that which were particularly embraced by workplaces, has fallen on tough times, down 66% over the past year. Its dominance in the business sector is increasingly threatened, with even many government offices switching to iPhones.

Nokia (NYS: NOK) , down 55%, is also quite worrisome, recently posting its sixth consecutive quarterly loss and reporting sagging sales for its Lumia phone. The company's embrace of Microsoft's (NAS: MSFT) Windows Phone hasn't paid off so far. One bright spot for Nokia has been its dominance in India, but with its switch to Windows Phone, it might relinquish some of its lead.

Component makers are critical for the industry, though some of them have suffered, too, with image-sensor specialist OmniVisionTechnologies (NAS: OVTI) down 17%, for example. The company provides cameras for iPhones, but it also faces competition in that realm, such as from Sony (NYS: SNE) , which is also providing cameras for iPhones.

Then there's contract manufacturer Sanmina-SCI (NAS: SANM) , down 4%. It recently became the top electronics manufacturing services company in India, which bodes well for its future. The company also offers diversification across operations other than smartphones - such as solar power , cloud computing, medical technology, defense , and more. And it has been aggressively paying down its debt.

The big picture
Demand for smartphones 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.

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Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Apple and Microsoft. The Motley Fool owns shares of Apple and Microsoft, is short Sony, and has options on Sony. Motley Fool newsletter services recommend Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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