Unusual, Novelty Funds Confuse Investors

(Correction: An earlier version of this article incorrectly identified the Roosevelt Multi-Cap Fund (BULLX) as the Roosevelt Anti-Terror Multi-Cap. The fund's advisor has discontinued the use of a screening process for companies that do business in Iran, Syria, Sudan or North Korea. More information on the fund is available at www.rooseveltmcf.com.)

BOSTON ( TheStreet) -- There was the StockCar Stocks Index Fund ( SCARX), the Blue Fund and the Golf Mutual Fund.

They are no longer with us, victims of niche marketing gone awry in the worlds of exchange traded funds and mutual funds. The StockCar Stocks Index Fund, formed in 1998 with NASCAR fans in mind, held shares of companies that sponsor the colorful cars. The Blue Fund offered investments consistent with liberal ideology, and the Golf Mutual Fund had positions in companies surrounding that sport.

The multiplying array of exchange traded funds and mutual funds are increasingly presenting investors with the challenge of separating novelty, or "flavor of the month" funds, from broad-based vehicles that consistently make money year after year.

According to the Investment Company Institute, 149 ETFs were launched in 2008 and 50 closed shop. There were 797 ETFs by the end of 2009, when 120 entered the marketplace and 49 left. In 2008, 704 mutual funds were created, compared with 321 that closed. In 2009, launches were outnumbered by closures, 457 to 488, and 336 funds merged with others.

The StockCar Stocks Index Fund presents a good example of the limits of niche funds. Numerous companies dropped out of NASCAR and, in turn, were dropped from the fund, hurt by the economic recession. Ever-changing holdings, however, weren't the only cause of the fund's demise. Over the years, its assets rarely topped $6 million.

Nevertheless, uniquely narrow funds are still doing their best to lure assets.

There are ETFs dedicated to specific states, with the Oklahoma Exchange-Traded Fund ( OOK) investing in its homegrown companies, and the TXF Large Companies ( TXF) ETF is doing the same for the Lone Star state.

The Vice Fund ( VICEX), with its focus on alcohol, gaming and tobacco stocks, is often compared with faith-focused options like the Timothy Plan family of funds that hold companies deemed to best reflect conservative Christian values.

And the Congressional Effect Fund ( CEFFX) invests in the S&P 500 on days when Congress is out of session and switches to domestic securities when it resumes.

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