Make Money in Health-Care Stocks with Potential the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the health-care industry to generate a lot of profits over the years as our population grows and ages, the PowerShares Dynamic Healthcare ETF (NYSE: PTH  ) 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.

It's referred to by some as an "enhanced" index fund, tracking the Dynamic Healthcare Intellidex Index. The index looks at a variety of measures to select health-care stocks that seem to have the most potential.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF's expense ratio -- its annual fee -- is a relatively low 0.60%.

The ETF has performed reasonably, having outperformed the S&P 500 over the past five years, on average, and the ETF is ahead of the index so far this year as well. 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.

What's in it?
Several of this ETF's components made strong contributions to its performance this year. Spectrum Pharmaceuticals� (Nasdaq: SPPI  ) , for example, has doubled so far in 2011, boosted by the strong reception its Fusilev drug is receiving as a way to combat side effects of chemotherapy. Its non-Hodgkin's lymphoma treatment, Zevalin,�has just become more convenient to use, which may attract more prescriptions.

Intuitive Surgical (Nasdaq: ISRG  ) gained about 71%. It's a big player in the emerging niche of robotic surgery, along with companies such as MAKO Surgical (Nasdaq: MAKO  ) . Intuitive's revenue and earnings have been growing by more than 30% annually, on average, over the past five years as more hospitals buy its machines and then keep paying for their supplies and services.

Questcor Pharmaceuticals (Nasdaq: QCOR  ) has more than tripled in 2011, as its Acthar drug for multiple sclerosis, infantile spasms, and nephrotic syndrome is selling well -- despite competition from Pfizer's (NYSE: PFE  ) Solu-Medrol and others. (Pfizer, another holding of the ETF, gained about 22% over the year.)

Other companies didn't add as much to the ETF's returns this year, but could have an effect in the years to come. Medical insurance specialist CorVel (Nasdaq: CRVL  ) is down 9% so far this year, but its revenue has been steadily increasing in recent quarters. (Its cash level dropped significantly in the last quarter, though.)

The big picture
Demand for health-care products and services 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 best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 Stocks for Your Retirement Portfolio.