How To Use Niche ETFs In Your Portfolio

I view ETFs like the ones mentioned above and hundreds of others as tactical positions. This means they will likely have a much lower overall allocation than a core position that has greater diversification and is built to be held long-term. Tactical positions should each represent no more than 5-7% of the asset allocation in your portfolio.

In addition, tactical positions are often ones that you can have a more flexible trading approach with. This means you may decide to invest in them over shorter time frames in order to capture a specific trend that is showing momentum or a tempting value that is ripe for a turnaround.

The Bottom Line

Niche ETFs offer differentiated strategies that may be attractive to those comfortable taking a higher degree of risk and paying a premium in cost above more diversified alternatives. Under favorable circumstances, they can provide a high degree or alpha (or outperformance) as certain industry groups surge. However, these funds should be used in moderation to avoid becoming overly tied to a single strategy or inducing too much volatility in your ETF portfolio.

This article is brought to you courtesy of David Fabian.

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