Niche ETFs are a part of the concept of thematic ETFs. While they are similar in many ways to thematic ETFs, niched ETFs also have significant differences. A niche ETF generally targets a narrower focus than a broad-based sector or general theme-based ETF.
How to Determine if a Niche ETF is a Good Fit for Your Portfolio. Many investors have found that it can be difficult to evaluate niche ETFs based on performance returns alone.
Beyond exposure to the general theme, each niche ETF offers access to many targeted levels of market exposure. This includes capitalization ranges, the type of asset, industries, sectors and geographic locations.
The dramatic growth of Niche ETFs has emerged due in large part to the market’s response to investor demand. The sheer number of niche products continues to expand as investors become more aware of them and learn how to use them to their best advantage in seeking to develop an optimal investment portfolio.
The original idea for the exchange-traded fund is nearly 30 years old. Started in 1989, it was initially called Index Participation Shares. The innovative new product was designed to be a proxy for the S&P 500 but it could also be traded on an exchange like a stock. It became a popular investment vehicle for both small and large investors.
You have decided to consider adding niche ETFs to your portfolio and now you need to do some basic research. It is difficult to know where to begin. Currently there are over 2,200 U.S. Listed ETFs and ETNs. Niche funds are just a small portion of that.