May 17, 2007: ETF thoughts

Scores of ETFs have hot the market over the past month. I am a strong believer of maximum opportunities for choice as it benefits the investor seeking to balance and tweak portfolios to personal taste. Whereas a short time ago, ETFs were breaking new ground (water, dividend tracking, share buyback, currency, sector and country blends, etc.), we are now looking at what was unique ground being inhabited by more than one ETF, mimicking to a large degree what has/had occurred in the mutual fund industry.

The main difference with replication ETFs is the "index" they choose to follow and how holdings of the fund are dispersed regionally and globally. Size also matters. Replication ETFs may hold primarily large cap in one ETF and primarily medium/small cap in another.

Recent ETFs focusing upon such investment themes as water resources, dividend plays, bonds, developing economies, currency baskets, alternative energy and parsed groups of securities of a certain nature defined by the ETF(s) are using proprietary indexes to gain an edge - ever so slight- on competitors. The individual investor should be proceeding more carefully into ETFs and make sure, by examining the holdings of the fund, that the portfolio is what you want it to be. There is a great variance in like-minded ETFs. Look at the offerings in water resources and alternative energy (Green and social ethically themed funds count here as well) to see how very different ETFs can be...same theme but vastly different securities in the portfolio, and very different indexes trying to gauge a similar result.

I am looking at ETFs differently than months/years ago, and I recommend that you investigate an ETF in depth before you make a purchase.