Narrowly-based exchange traded funds (ETFs) usually takes the bad rap of being too risky.
Roger Nusbaum for TheStreet says that this blanket statement misses the point, and that a narrowly-based ETF can be a great tool.
While some funds do end up fizzling out because of hinging on composition method or a sub-sector not mixing with indexing, they are not all bad bets. If you would use a sub-sector ETF, it is important to consider cyclical issues that would affect the fund.
Nusbaum points out that a themed fund with a tilt toward industrial stocks is not likely to do well in a recession. Since an ETF tracks an index, some more established than others, a top-down view assesses whether a certain time is the right point of entry instead of a bottom-up study of price-to-earnings ratios.
The more ETFs available, the more options investors have. They might not be right for everyone, but it’s empowering to be able to decide for yourself. Just make sure you do the research.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.