Behold: A Basket of Tech Growers

Behold: A Basket of Tech Growers

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some technology stocks to your portfolio but don't have the time or expertise to hand-pick a few, the PowerSharesDynamic Technology Sector Portfolio ETF 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 0.65%.

This ETF has performed reasonably, beating the world market over the past three and five years. 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 technology?
Our growing world population will demand more and better high-tech products and services over time, boosting the business of successful technology-oriented companies.

More than a handful of technology companies had strong performances over the past year. Checkpoint Systems just about doubled in value, and that's including a 14% drop after the company recently posted disappointing second-quarter results. Gross margins were up, though, and the company raised its expectations for the year, so all was not bad. The stock was recently upgraded to Outperform by analysts at Imperial Capital. Checkpoint specializes in theft-prevention, inventory management, and labeling technologies for retail industry.

Cisco Systems gained about 29% and yields 2.8%. It, too, recently posted weaker-than-expected results. Its fourth-quarter revenue was up 6%, but earnings were below last year's levels. Some saw the performance as not so bad, and the stock's 10% drop as an overreaction. The company also announced cost-cutting in the form of a 5% staffing reduction (which translates to several thousand jobs), and it will be instructive to see where the cuts are made. Cutting R&D, for example, can limit the company's innovation and future growth. Meanwhile, the company has bought network security specialist Sourcefire. Cisco has been restructuring itself and integrating its various business lines, such as cloud computing, video communications, and mobile devices.

Western Digital , which advanced 53%, controls about 85% of the hard-disk drive market, with Seagate Technology . Despite worries about a shrinking PC market, bulls see massive and growing need for storage, and view hard-disk drives as inexpensive solutions for that. With a forward P/E ratio near 8, Western Digital appears undervalued, and it has boosted its presence in solid-state drives by a recent purchase of sTec (which recently posted widening losses). It recently further invested in its solid-state business by buying I/O optimization software maker VeloBit. Western Digital's stock yields 1.5%.

Seagate Technology, meanwhile, gained 17% and yields 3.9%. It has been upping its payout considerably in recent years. Seagate is an attractively priced, with its P/E ratio around 7 and robust free cash flow. It has been hurt by the decline of the PC, but there's still hope, as cloud computing takes off and requires storage, and if solid-state and hybrid drives grow in demand. While Western Digital has partnered with others in order to compete in solid-state drives, Seagate has been building its own SSD business. Some are wary, though, thinking its margins can't grow much, and that it might not be able to shrink its share count as much as it wants to.

The big picture
Demand for technology 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.

This isn't the only interesting ETF out there. You can learn more about a few ETFs that have great promise for delivering profits to shareholders by checking out "3 ETFs Set to Soar." Just click here to access it now.

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Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and owns shares of Western Digital. 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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