Welcome to the fun-house world of single-focus exchange-traded funds or ETFs, which take laserlike aim at one theme or industry in hopes it catches fire.

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As the sun sets over New York Harbor on a clear October evening, a party is in full swing on the 31st floor of a skyscraper a few blocks from Wall Street. The view from the floor-to-ceiling windows is partially obstructed by a 4-foot tall, 3-D printed black bull, its head framed against the flaming orange sky.

Hollow on the inside, the bull was assembled from blocks, giving it the look of a cubist painting come to life. It’s a gift from the host of the celebration, exchange operator Bats Global Markets, to the guest of honor, Ark Investment Management, which launched an exchange-traded fund that tracks the 3-D printing industry. The exchange-traded fund, called The 3D Printing ETF, is listed on Bats under the symbol PRNT. Ark will add a glass surface to the bull, “turning it into a standing desk for our analysts,” Ark Chief Executive Catherine Wood tells Bats CEO Chris Concannon.

As guests mingle, each wearing a 3-D printed name tag with the green Bats logo, a steady squeal comes from a corner. A 3-D printer is producing party favors: mini bulls. 

That the soiree is even taking place would’ve seemed ludicrous 10 years ago. Yet here we are. So why the brouhaha over a fund that invests in 3-D printing? It’s part of a growing cohort that’s unsettling the portfolio-management business.

Welcome to the fun-house world of niche ETFs, each a portfolio of stocks with a laser focus on a single theme or industry. Other offerings include a Drone Economy Strategy ETF from PureFunds that began trading in March, an Internet of Things Thematic ETF from Global X that went live in September, and an ETF dedicated to investing in liquor, the Spirited Funds/ETFMG Whiskey and Spirits ETF, which hit the market on Oct. 12 with the apt ticker symbol WSKY.

The challenge for thematic funds and others looking to crack the $2.7 trillion ETF industry is how to stand out in a crowded field. Of the 2,270 niche funds launched in the past decade, nearly half have less than $50 million in assets, a relatively paltry sum, and about 16 percent have been liquidated.

The appeal of a fund devoted to whiskey and spirits is obvious, said David Bolton, president and CEO of Spirited Funds, which created the WSKY product.

“People want to invest in what they know and like,” said Bolton. “I think the story of whiskey speaks for itself. People understand it like that,” he said, snapping his fingers.

His goal is to accrue more than $1.5 billion in assets by the time of the Kentucky Derby in May, he said.

To other market players, the narrowly focused funds can be a nuisance, tying up capital that could be used elsewhere, according to Reggie Browne, senior managing director at Cantor Fitzgerald, whose nickname is the “Godfather of ETFs.”

“The thematic stuff is clogging the system,” he said. “Are there too many thematic ETFs in the marketplace with low levels of assets, with very dim prospects of pickup? That’s the question the industry should ask.”

One reason such funds are small is they’re typically issued by niche players. The largest ETF firms — State Street, Vanguard Group and BlackRock — rarely take chances on an off-the-beaten-path fund idea that may not attract huge amounts of assets, said Eric Balchunas, an ETF analyst at Bloomberg Intelligence. That leaves room for smaller outfits to swoop in and take a chance on more narrowly focused ideas. 

“You put them out there, and you hope the stars align,” Balchunas said.

Some narrowly focused funds strike gold. The PureFunds ISE Cyber Security ETF, which goes by the symbol HACK, built up more than $756 million in assets since it began two years ago.

PureFunds founder Andrew Chanin said the key is distinguishing between a fad and a trend. In addition to its drone and cybersecurity products, PureFunds has ETFs focused on big data and analytics, video-game technology and financial technology.

“For me the last thing I want to do is create an ETF on a concept, technology, or theme that’s likely to become obsolete in just a few years’ time,” he said. “It’s about doing research to gain conviction in the concept.”

Of course, the best-laid plans can benefit from luck too. HACK hit the market less than two weeks before the revelation that Sony’s computer network had been hacked, a breach later attributed to North Korea.

Among those funds that failed to replicate HACK’s success and are now shuttered are HealthShares dermatology and wound care ETF, Global X’s fishing industry ETF and a fund focused on companies headquartered in Oklahoma.

Large issuers are wading into the niche ETF business in a different way, by creating specialized funds built around social and environmental issues that are backed by big institutional investors.

State Street started the SPDR SSGA Gender Diversity Index ETF, which has the ticker SHE. It tracks companies that prioritize putting women in their leadership ranks and has accrued $270 million in assets since its March launch, after a $250 million investment from the California State Teachers’ Retirement System.

And low-carbon ETFs started by BlackRock and State Street have been seeded by the United Nations Joint Staff Pension Fund, which has more than $46 billion in assets.

This helps explain why Chanin believes the environment is getting increasingly challenging for small firms that are trying to be creative with their fund offerings.

“It will be more competitive for brand-new issuers to come to market and try to take on market share,” he said. “Unless you’re a previously existing, well-known issuer, entering the ETF arena there’ll be more hurdles from the issuer side for new startup ideas.”

For retail investors, it’s important to tread carefully with boutique funds, according to Rich Messina, head of investment products at E*Trade Financial Corp. The funds should only occupy a small fraction of an investor’s overall portfolio, he said.

“It’s buyer beware,” Messina said. “If they’re looking for an opportunity and they’re not using diversification — it’s those types of investors that I would get concerned about.” 

Of course, what’s considered a niche can change over time too. While a gold-focused fund may have seemed novel 10 years ago, gold ETFs have become practically mainstream investment vehicles, said Shundrawn Thomas, head of Northern Trust’s Funds and Managed Accounts group. State Street’s SPDR Gold Shares fund has $39 billion in assets and VanEck’s Vectors Gold Miners ETF has $10 billion in assets, respectively.

Still, Northern Trust doesn’t create any industry-specific funds of its own, shunning the strategy in favor of other fundamental factors, like the potential for long-term growth and risk management, Thomas said. Chasing the success of an ETF that tracks gold or cybersecurity or 3-D printing can be an expensive challenge, and one that isn’t worth it to all issuers.

Because some funds are destined to fold like paper bulls.

“That’s just antithetical to our approach,” he said. “But I think, in a sense, people will try to catch that lightning in a bottle.”