Specialty ETFs, or sector funds, offer a unique way for investors to zero in on specific industries or market segments that align with their growth expectations. Unlike traditional index funds that provide broad market exposure, specialty ETFs focus on niche sectors such as energy, fintech, or consumer goods, making it easier for investors to tap into the areas of the economy that are experiencing rapid growth, innovation, or transformation.  

Below, I have highlighted three specialty ETFs that are fundamentally sound and positioned to offer strong growth opportunities: iShares U.S. Energy ETF (IYE), ARK Fintech Innovation ETF (ARKF), and VanEck Retail ETF (RTH). These funds provide diversified exposure within their respective sectors, allowing investors to focus on industries with strong growth potential.

Investor sentiment toward specialty ETFs is generally upbeat, thanks to their ability to target high-growth sectors and niche markets with specific investment themes. However, there is some caution due to the lack of diversification, as these funds are more susceptible to sector-specific risks and volatility.

Despite these risks, many investors are turning to specialty ETFs as a strategic way to position their portfolios to benefit from the growth potential of industries that are on the cusp of transformation. Whether it’s the energy transition, the rise of fintech, or the evolving retail sector, these funds present attractive options for investors looking to capitalize on emerging trends.

To that end, let’s delve into the fundamental aspects of the above-mentioned ETFs in detail:

iShares U.S. Energy ETF (IYE)

IYE seeks to track the investment results of a market-cap-weighted index composed of large-cap U.S. companies in the energy industry. The fund holds a concentrated portfolio of companies that facilitate the production and distribution of oil and gas. It tracks the performance of the Russell 1000 Energy RIC 22.5/45 Capped Index.

With $1.34 billion in assets under management (AUM), its top holdings include Exxon Mobil Corporation (XOM) with a 21.65% weighting, Chevron Corporation (CVX) at 14.92%, followed by ConocoPhillips (COP), and EOG Resources, Inc. (EOG) with 7.25% and 4.67% weightings, respectively. The fund currently has 43 holdings in total, with its top 10 assets comprising 68.3% of its AUM.

Over the past three months, IYE’s fund inflows came in at $31 million. In addition, its 0.39% expense ratio compares to the category average of 0.47%. The ETF’s NAV was $49.21 as of January 15, 2025.

IYE pays an annual dividend of $1.25, translating to a 2.54% yield at the current price level, while its four-year average dividend yield is 3.02%. Over the past three years, its dividend payouts have grown at a CAGR of 11.74%.

IYE has gained 14.2% over the past year and 8.8% year-to-date to close the last trading session at $49.59.

IYE’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

IYE also has an A grade for Buy & Hold and Trade and a B for Peer. Among the 46 ETFs in the B-rated Energy Equities ETFs group, it is ranked #5. Click here to see all the IYE ratings.

ARK Fintech Innovation ETF (ARKF)

ARKF is an exchange-traded fund managed by ARK Investment Management LLC. This actively managed fund focuses on financial technology innovation, which ARK defines as the introduction of new, technology-driven products or services that have the potential to transform the financial sector. The fund invests in stocks of both domestic and international companies within this theme, and its performance is benchmarked against the S&P 500 Index and the MSCI World Index.

The fund has approximately $1.02 billion AUM. ARKF’s major holdings include Coinbase Global, Inc. (COIN) with a 9.49% weighting, Shopify Inc. (SHOP) at 9.29%, Robinhood Markets, Inc. (HOOD), and MUTUAL FUND (OTHER) at 5.99% and 5.89%, respectively.

The ETF has 37 holdings, with its top 10 assets comprising 56.73% of its AUM. ARKF’s expense ratio is 0.75%, higher than the category average of 0.56%.

Over the past year, ARKF has gained 52.1% to close the last trading session at $38.89. The fund’s NAV was $38.73 as of January 03, 2025.

ARKF’s bright prospects are reflected in its POWR Ratings. The ETF’s overall B rating equates to a Buy in our proprietary rating system.

ARKF has an A grade for Trade and a B for Buy & Hold. The fund is ranked #57 out of 119 ETFs in the A-rated Technology Equities ETFs group. Beyond what we stated above, we have also given ARKF a grade for Peer. Get all ARKF ratings here.

VanEck Retail ETF (RTH)

Launched and managed by Van Eck Associates Corporation, RTH invests in U.S. equities within the consumer discretionary and retail sectors. It targets large-cap growth and value stocks while tracking the MVIS US Listed Retail 25 Index. The fund allocates at least 80% of its assets to companies that derive at least 50% of their revenue from retail, including specialty and multi-line retailers, wholesalers, and online platforms.

With $221.70 million in assets under management, its top holdings include Amazon.com, Inc. (AMZN) with a 19.78% weighting, Walmart Inc. (WMT) at 8.71%, followed by Costco Wholesale Corporation (COST) and The Home Depot, Inc. (HD) with 8.06% and 7.73% weightings, respectively.

The fund currently has 26 holdings in total, with its top 10 assets comprising 71.2% of its AUM. RTH has a 0.35% expense ratio, lower than the 0.57% category average. Its fund inflows were $11.25 million over the past year.

The ETF distributes $1.73 in dividends annually, translating to a yield of 0.76%. Its four-year average dividend yield is 0.89%. Over the past three years, its dividend payouts have grown at a CAGR of 4.6%.

RTH has gained 20.1% over the past year and 13.8% over the past nine months to close the last trading session at $227.42. As of January 15, 2025, RTH had an NAV of $227.70.

RTH’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall A grade, equating to a Strong Buy rating in our proprietary rating system.

RTH also has an A rating for Buy & Hold, Peer, and Trade. Of the 48 ETFs in the B-rated Consumer-Focused ETFs group, it is ranked 8. Get all RTH ratings here.

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IYE shares were unchanged in premarket trading Friday. Year-to-date, IYE has gained 8.82%, versus a 0.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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