Sector funds can be useful tools for investors with strong views on the economy. But if you use them, you need to understand exactly what you're buying—and how much risk is involved.

"A sector ETF allows someone to take a more active or tactical slant to a portfolio" than a fund with a broad investment strategy, says Todd Rosenbluth, director of research on exchange-traded funds at S&P Capital IQ. "You can use sector ETFs to increase your exposure" to areas of the market you are most confident about, he says, and "ignore sectors you don't think will do as well."