Walk through any fund screener today and you’ll see tickers tied to eye-catching themes: aging populations, wellness, organic foods, even obesity. They sound clever and timely, promising to turn big social shifts into big profits.

But for someone saving for retirement or long-term goals, these thematic ETFs often do the opposite of what a sound portfolio should do: they reduce diversification and increase risk.

Trend ETFs

The ETF industry is extremely good at packaging stories. If there’s a headline trend, odds are someone has launched a themed fund around it. These trend funds typically hold a narrow group of companies expected to benefit from a specific force, such as health and fitness, long-term care or organic food consumption. Marketing language often talks about “transformative change” and “unprecedented opportunities,” which sounds grand but doesn’t guarantee superior returns.

Indexing’s Roots

The original idea behind index investing was very different. Early index pioneers promoted a simple concept: instead of guessing which slice of the market will shine, own the entire market at very low cost and accept market returns. That’s what broad index funds and core ETFs still do well. By slicing markets into thinner and thinner niche products, providers have turned a diversification tool into a vehicle for speculation about which narrow theme will outperform.

Old News, No Secret

Many themes used to pitch niche ETFs are not fresh discoveries. Demographic aging, the rise of chronic health conditions, the popularity of fitness or organics—these trends have been studied and discussed for decades. Analysts following health care, consumer goods and technology have tracked companies tied to these forces for a long time. If a theme is widely known, it is probably already reflected in stock prices, meaning a themed ETF does not give you some hidden informational edge.

Hidden Concentration

The real problem with offbeat ETFs isn’t that the themes are wrong; it’s that the portfolios are often very narrow. Instead of owning thousands of companies across many industries, you may end up with a few dozen names largely clustered in similar sectors. That concentration makes your results heavily dependent on one story playing out exactly as expected, while other areas of the market you ignored might quietly deliver stronger returns.

Diversification, Properly

Good diversification means owning companies of different sizes, sectors, and regions so your future doesn’t hinge on a single trend or industry.

Harry Markowitz, a portfolio theorist, states, “Diversification is the only free lunch in investing.”

Cost and Complexity

Niche products often come with higher expense ratios than simple market-wide funds. You pay more each year for a portfolio that holds fewer stocks and delivers less diversification. Add in the temptation to trade these “exciting” funds frequently, and costs can stack up further through spreads and possible tax consequences. Over decades, a slightly higher fee paired with occasional ill-timed trades can quietly shave tens of thousands from a retirement balance.

Story vs. Strategy

A strong narrative is not the same as a sound investment strategy. It is easy to be drawn to a fund whose name matches personal interests or social concerns. But a label and a clever ticker symbol don’t answer core questions: How diversified is this fund? What are the fees? How volatile has it been? How does it fit with existing holdings? Long-term success comes from discipline and structure, not from chasing the most compelling story.

If You Must

For investors who truly enjoy thematic investing, niche ETFs can be treated as a small “fun money” sleeve rather than the foundation of a plan. Keeping these funds to perhaps 5% or less of a total portfolio helps limit damage if the theme disappoints. Before buying, check the expense ratio, number of holdings, sector concentration, overlap with broad funds you already own, and trading costs (spreads). Treat them as side speculations, not core holdings.

Back to Basics

Building wealth rarely requires complex tools. A long-term plan based on regular contributions to diversified, low-cost funds and occasional rebalancing has historically served investors well. Offbeat ETFs tend to add excitement, not reliability. When choosing where to put new savings, a useful question is: “Does this make my portfolio simpler, broader and cheaper—or narrower, noisier and more expensive?” The first path usually leads closer to your goals.

Conclusion

Themed and quirky ETFs invite you to guess which version of the future will dominate and to stake your money on that guess. A broadly diversified portfolio, in contrast, is built to do reasonably well across many possible futures, including ones no marketer has imagined yet. So when you look at your holdings today, are you investing in stories?