Specialty ETFs are strategy-based funds designed to beat the market benchmark. Expense ratios are higher than plain vanilla index and sector ETFs, but some strategies have performed well. Others have not. We cannot say based on results that the reward is worth the price.What exactly are strategy-based specialty ETFs, and how do they work? Typically these ETFs focus on a specific area of the market or a specific trade. Portfolio rotation is pre-set but also subject to market conditions. Descriptions of several popular specialty ETFs follow.PowerShares S&P 500 BuyWrite (NYSEArca:PBP - News) is an ETF that attempts to capitalize on market volatility. PBP sells call options on underlying equity positions held in its portfolio. PBP gets the premium for selling (or writing) these call options. Risk is limited because the fund owns the underlying security against which the options are sold. Because of timing, volatility calculations, and transaction fees, this is a hard trade for most investors to execute so a low cost so an ETF like PBP can make sense. The chart below compares PowerShares S&P 500 BuyWrite (NYSEArca:PBP - News) with the benchmark Standard and Poor's Depositary Receipts (NYSEArca:SPY - News). As the chart shows, PBP has par-performed during most of the period covered in the chart. PBP underperformed the benchmark lately . When a market appreciates rapidly, a buy-write portfolio typically will underperform because the underlying equity supporting the short call position will be called away. The premium received from selling the calls in this case does not cover sudden stock price appreciation. By contrast, an ideal scenario for a covered call portfolio is a sideways market with high volatility.Another example of a specialty ETF built around a trade is First Trust U.S. IPO Index Fund (NYSEArca:FPX - News). This ETF manages investment in new issues to market (or IPOs). FPX does not provide any special access to coveted new issues. Instead it invests in a newly issued stock, buying after the first seven days after the initial IPO and then selling the stock after 1,000 days of trading. This is a reasonable strategy for capturing investment in IPOs. The first few days of market trading is usually hectic. It can be profitable to buy during this period but it can also be highly dangerous. After 1000 days (and arguably long before then) whatever advantage there may be to investing in newly listed companies would certainly have been realized. The chart below compares FPX to the benchmark SPY The chart above shows that FPX has done well recently. As Jason Draho among others has shown, most IPOs in their first few months of trading do not sufficiently reward investors. Part of the strength of FPX shown in the chart can be attributed to a reversal of the frenzied dumping of IPO stocks during the market crisis in 2008-2009.Guggenheim Insider ETF (NYSEArca:NFO - News) is another specialty fund designed to take advantage of company insider transactions. Company insiders have to publicly disclose when they buy and sell shares of their own stock. The argument that underlies the insider transaction trade is that insiders understand their products and markets better than the rest of the public. They tend to buy when their stock has value. Investment in NFO has paid off recently for investors. Guggenheim does not specifically disclose the criteria for how stock selection is made. According to the prospectus, NFO tracks an index where selection is determined by favorable corporate insider buying trends. Earnings data is also incorporated into stock selection, as well as other criteria.The SPDR Barclays Capital Convertible Bond ETF (NYSEArca:CWB - News) is a newer fund without a three-year track record. CWB holds convertibles. Convertible bonds are known as hybrids because they have characteristics of both debt and equity securities. Convertibles are in fact bonds, and pay interest coupons like bonds, but can be converted into new equity shares. The availability and liquidity of these instruments makes it difficult for most investors to accumulate and manage a diversified convertible bond portfolio cheaply. Not every company offers convertibles. Because of its fixed income exposure, CWB can be expected to outperform equity during downturns. The chart below compares the return of CWB with the SPY and the investment grade bond benchmark, iShares Investment Grade Corporate Bond Index (NYSEArca:LQD - News). As the chart shows, CWB tracks equity (the SPY) closer than debt (LQD). As the bond markets sold in the fall of 2010, CWB slipped but slightly. In a rising market, convertibles tend to par-perform or slightly underperform equity. In a falling market, the fixed income component should help cushion losses. The chart shows mostly par-performance. CWB currently yields about 4.5%. Average credit quality is below investment grade, at BA1.Popular Specialty ETFs and their expense ratios follow:PowerShares S&P 500 BuyWrite Portfolio (NYSEArca:PBP - News), 0.75%PowerShares Listed Private Equity Portfolio (NYSEArca:PSP - News) 0.70%Guggenheim Insider ETF (NYSEArca:NFO - News), 0.65%Claymore Ocean Tomo Patent ETF (NYSEArca:OTP - News), 0.65%SPDR Barclays Capital Convertible Bond ETF (NYSEArca:CWB - News), 0.40%Jonathan Bernstein has been writing about ETFs since 2003 and is the author of Sector Trading: A Year in Exchange Traded Funds.