Exchange-traded sector funds give investors the opportunity to instantly increase or decrease their exposure to different sectors of a benchmark through a one-step equity trade and offer diversification, low expense ratios, high tax efficiency, and at the same time allow investors the flexibility of the full range of stock order types throughout the day, Lipper reports. In addition, certain sector ETFs even have the added benefit of highly liquid options trading.

These characteristics have helped ETFs become one of the most flexible multi-purpose investment vehicles available. Today, there are approximately 195 ETFs listed, mostly on the AMEX, and their assets total over $260 billion.

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