Niche ETFs: The Next Frontier of Fear-Mongering

Some pundits just love to negatively chime in regarding the goings on in the exchange-traded product industry. Whether it is criticizing leveraged ETFs for sport, saying that low volume products should always be avoided or

, deliver solid returns.

Yes, it is fair to say a carbon ETN is a niche product. So are ETFs devoted to sub-sectors such as cloud-computing and Brazilian banks. In fact, the Global X Brazil Financials ETF

was mentioned as niche play

on hyper-focused ETFs. That piece says funds such as BRAF are risky. Risky compared to what? Brazil is Latin America's largest economy, home to some of the region's largest banks and the average market value of BRAF's constituents is over $12.2 billion,

. Over the past year and year-to-date BRAF has outperformed the larger and more mainstream iShares MSCI Brazil Index Fund

. As for the First Trust ISE Cloud Computing Index Fund

, which was criticized for its narrow focus when it debuted in July 2011, that fund now has almost $72 million in assets under management. The median market cap of SKYY's holdings is $9.9 billion and it should be noted the ETF is not littered with unfamiliar stocks. Holdings include Oracle

, Google

and Amazon

. SKYY is up 8.6 percent this year.

Not all niche ETFs will survive. That much has been made clear, but then again, not all ETFs will survive period. Just look at some of the ETFs that have been shuttered this year. Scottrade's FocusShares lineup was by no means too narrowly focused. Those funds were essentially

, but all 15 were shuttered. With the ETF market maturing and a glut of benign fund offerings already populating the market, investors have little use for another ETF holding Treasuries or another fund offering exposure to U.S.-based consumer staples stocks. Some niche ETFs do thrive in terms of gaining assets and delivering returns. The assertion is supported by some ETFs that track the emerging markets consumer theme, arguably a niche concept. The Global X China Consumer ETF (NYSE: CHIQ

while the EGShares Emerging Markets Consumer ETF (NYSE:

) has $450 million in assets. In the past three months, those funds are up 16 percent and 12 percent, respectively. Niche concepts can be found in the bond arena, too, but the evidence supports the notion that ETFs that give investors exposure to

are credible ideas. That much is clear as the PowerShares Senior Loan Portfolio

has accumulated over $1.1 billion in AUM in less than two years of trading. The WisdomTree Emerging Markets Corporate Bond Fund

debuted in March and already has $88.3 million in AUM. BKLN, EMCB and some other narrowly focused

have proven popular with investors. Expect that trend to continue as income investors look for alternatives beyond low interest rate Treasuries. For more on niche ETFs, click

.