Flood of New ETFs: The Good, The Bad, The Indifferent

Roger Nusbaum submits: My inner geek is agog over this post from Matt Hougan with all of the ETFs that are in registration. It is the motherlode for this sort of thing.

I am most interested in the State Shares Missouri 50 and the HealthShares GI/Gender Health. Those are not made up funds -- but I am kidding about being interested.

If you look though the listings I think you might draw the same conclusion that I a drew awhile back and have been repeating over and over, which is most of these will be useless but a few here and there that will hold some promise. I made fun of the Gender fund. That same company (the former Ferghana Wellspring) has one in its list called European Drug. Well drug companies are a great way to access Europe. This fund could turn out to be better than iShares Global Health (IXJ) or WisdomTree International Health (DBR), both of which show up in a few accounts I manage. I don't know if it will be better -- I don't know anything about the fund yet -- but in scanning the list it sticks out.

The flood of ETFs is nowhere near the bugaboo that some folks cite. Many of them will live in obscurity with less than $50 million and will never wag the dog. It is also unlikely that any of them leave so many confused and disgruntled shareholders as USO appears to be doing. One thing that seems be true is that very few ETFs are perceived as "not working." There may be some that lag, but here I am differentiating between lagging and malfunctioning.

I write over and over about not believing in all ETF portfolios as being the best way to go. While ETFs allow us to do things we could not do before, nothing so far is changing my mind on this point. This coming June I will be a featured speaker at an ETF conference in NYC; my topic will be foreign investing. While I do not yet know exactly what I'll say, I will lead with the fact that I don't believe in all-ETF exposure, which of course might be the end of any speaking engagements.

One last point. As you look through the listings in Matt's post you will see a lot of funds that have some degree of active management. Some of them, by the nature of what they screen for, can capture a certain effect, like the Patent ETF (OTP) -- possibly being a proxy for large cap growth. But these funds can also be problematic too. Too many of these, and you may end up with a bigger bias to growth or large cap or something else. I'm not as excited about these as I was with water, agriculture, currency and a couple others.