Just like when two fitness trends collide (like Yoga+ HIIT), or when your favourite food has an unexpected kick (chili+ chocolate), the growing ETF universe allows investors to combine this popular structure with a niche sector that piques their interest.

According to the most recent data from the Canadian ETF Association, Canadians now have 766 ETFs to choose from, 87 more than the year before. Investors can access ETFs covering everything from the broad index to geographic or sector-specific strategies like India, automobile innovation, cannabis or U.S. healthcare, and investment strategies such as low volatility. The growth in the number and types of ETFs available — baskets of securities that can be bought and sold on the exchange — is a response to their current popularity with both retail and institutional investors.

Indeed, while specialty ETFs might seem like a lower-cost way to gain access to some interesting sectors, they are not for every portfolio.  With so many options in the market, it is important to take the time to understand the core components of these products, as well as your investment strategy, before getting into the discussion of whether they are for you.

Have a plan: Before you start investing in ETFs or other products, it is important to have an investor policy statement, which outlines the parameters of where investors will go, how they will react, and which products are up for consideration, says Naheed Gilani, a certified financial planner with Conscious Wealth in Calgary.

“That document is something they can always refer back to when there’s a life change, when there’s a big market change, or just for general ‘keeping up with your finances’,” he says.

Within that, says Gilani, investors need to identify their strategic asset mix — the combination of stocks, bonds and cash. And only then can they work towards deciding which ETFs might work within their portfolio.

Consider the tradeoffs: The real power of the ETF structure, says Rona Birenbaum, a fee-only certified financial planner and founder of Toronto-based Caring for Clients, is that it provides a lower-cost way to get broadly diversified market exposure from both stocks and bonds.

However, she adds, when you tinker with this strategy, moving away from broader market ETFs towards more niche offerings via an active overlay or sector-specific vehicle, the costs will go up. Often, ETF management fees sit in the range of 0.03% for broad-based ETFs to 0.75% for specialty vehicles.

“One consideration when [looking at] niche or more specialty or active ETFs is the cost and whether the additional cost is likely to generate outperformance relative to a low-cost, broad based alternative,” she says. Niche products may also introduce more risk into their portfolios.

Other potential dangers: less public information about certain niche ETFs as there are fewer people reviewing them, and lower trading volumes on less popular products which could present challenges when the investor wants to buy or sell.

When niche might work? Gilani says in certain scenarios, a sector or geography-based ETF may be used to fill a gap identified in the portfolio.

Before you jump in, ensure that you have a full understanding of the pros and cons of niche ETFs. They add a level of complexity and potential risk that most investors don’t really need to take on to meet their financial goals.

Helen is a freelance writer specializing in news and feature articles on a variety of business, legal and investment topics. Her work has appeared in publications such as the Globe and Mail, National Post Legal Post, Fund Strategy magazine, Canadian Lawyer magazine, Benefits Canada and the Hamilton Spectator’s Hamilton Business magazine. Prior to embarking on a freelance career, Helen was the Community Content Editor for Stockhouse.com, and she previously worked as Associate Editor of Canadian Lawyer magazine/Law Times newspaper. Follow her on Twitter @helenbnichols