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.”

The trouble, he said, is that the seed capital used to start a fund, often a few million dollars, remains tied up if an underperforming fund isn’t liquidated by its issuer. And exchanges have little incentive to delist them. One fix, he said, would be for exchanges to raise listing standards for ETFs.

One reason such funds are small is they’re typically issued by niche players. The largest ETF firms -- State Street Corp., Vanguard Group and BlackRock Inc. -- 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.

Fad Or Trend

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.”

For a Bloomberg Markets profile of Chanin and PureFunds, click here.