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Our firm has developed an ETF/ETN database with our own classifications. This database powers the software on our website (www.marketriders.com) that allows individual investors to build a well diversified portfolio using ETFs. When we update our database we develop some unique insights regarding the growth and current state of the ETF market. We share some of these perspectives with interested Seeking Alpha readers. One caveat: a few of the newer ETFs are not included, but we have included nearly 700 ETFs that today account for at least 99.5 % of all funds invested in US ETFs.

First, here is a macro view of US ETFs from a net asset value [NAV] perspective. With over $600 billion invested in ETFs, 25% is invested in the top 3 ETFs (SPY – 14%, EFA – 7%, and EEM – 4%). Forget the 80/20 rule here. In fact, 50% of all capital invested in ETFs is in the top 16 ETFs, or the top 2%. Only 100 out of 693 ETFs have an NAV of over $1 billion and only 55 ETFs between $500m and $1 billion. In fact, half of all ETFs have a NAV under $75 million. Lower NAVs imply less volume and liquidity. Thus, all of the discussions on SeekingAlpha that caution investors about the bid/ask spread risk of buying ETFs are justified when so many have such limited liquidity and volume.

Second, we multiplied the fees charged for each ETF by its NAV to see how much the ETF industry as a whole was extracting from investors in fees and the number is… $2 billion per year, an average of .29% in fees based upon the $600 billion invested for the industry as a whole. Ironically, the world's largest ETF, SPY, only makes State Street $67 million per year in fees (.08%) while Barclays iShares charges .74% on EEM and .34% on EFA and receives $330 million per year in fees on these two products alone -- about 17% of the entire industry. No wonder Vanguard is racing ahead with lower fee alternatives in VEA (.12%), VWO (.25%) and VEU (.25%).

For our software we've created our database with ETF classifications in 12 groups. It gets really fun when drilling down into these categories and looking at where, in aggregate, the ETF providers are offering products and where investors are enjoying more choices. Experts could debate us forever but we've made these decisions so that individual investors can easily make choices based upon the dizzying array of products that continue to be brought into the market. Here are the ETFs in each of our categories:

Category

# ETFs

Sector Funds

180

US Stocks

172

Commodities

78

Foreign Developed Markets

67

Bonds

52

Shorts

41

Emerging Markets

37

Real Estate

27

Currencies

18

World Market Stocks

11

Lifecycle Funds

6

TIPs

3

Sector Funds. We find it most interesting that the largest ETF category, are sectors with 180 funds. The basic sectors include the following ETFs sorted by the number of offerings in each:

Healthcare

41

Technology

32

Financial

25

Consumer Discretionary

17

Consumer Goods

14

Utilities

13

Basic Materials

10

Communications

9

Industrials

9

Homebuilders

4

Aerospace & Defense

3

Social Index

2

Transportation

1

Is it my imagination, or are the providers going a little crazy with 41 ways to index the healthcare industry and 32 to index technology? I guess it would stand to reason that where there is high volatility, there are more ETF products. Of course there are the usual colors and flavors of sector ETFs. You can buy them on a global basis, equally weighted or even leveraged.

US Stocks. There are 172 ETF funds that focus on the US Stock market. The range spans from 11 funds that index the "Total Market" to 4 that let you invest in the smallest of small US Stocks – the microcaps. There are 85 Large Cap, 41 Mid Cap, and 31 Small Cap US Stock ETFs. But it gets better. US Stock market ETFs offer many ways to index. There are dividend weighted, value, growth, blended, leveraged, and even quant strategies for nearly all of each size and style. I wonder what one could possibly dream up for another US Stock ETF!

Commodities. Of the 78 Commodity funds, 9 are agricultural focused, 3 give you exposure to the new Cleantech companies, 15 are solely exposed to various metals like gold (GDX, IAU), silver and other precious metals, 4 are water only and 50% (39 funds) index energy in some way. Of these, there are a variety of choices including: alternative energy, gas, oil, drilling services, fully diversified, exploration and production companies. There are also various indexing techniques including dividend oriented and equal market cap weighted. For example, want to build a pair of index exploration / production companies and oil services companies? IEO / IEZ are market cap weighted, while XOP / XES are more equally weighted all with basically the same kinds of companies – your choice.

Foreign Developed Markets. This group now consists of 67 funds, of which 22 index individual countries like Canada (NYSEARCA:EWC) and Japan (NYSEARCA:EWJ). There are 26 funds that we call "Continents and Regions" where one can get exposure to a specific group of countries like just Asia or just Europe. Once you've picked your area of choice, you have more choices of how you'd like to index. The rest are generally diversified but there are flavors. Want one that focused on dividends, or one that equally weights all the stocks? No problem.

Bonds. Of the 52 funds that have recently been opened for bonds, 14 are muni bond funds and 16 are just US government bonds. These funds can be purchased as short, intermediate and long term as well as a blend of time horizons. The remaining 22 funds are a smattering of corporate, credit and mortgage and now new emerging and foreign market bond funds.

Shorts. We categorize all funds that bet against a market or a sector in this one classification as individual investors generally think about these allocations as hedges. Of the 41 ETFs that allow you to "bet against" something, 15 are sector-focused, 20 are US stock market oriented (small, mid and large cap), and 6 allow you to short foreign markets. And of course if just a plain short isn't good enough, you can get twice the hedge in one ETF like the SDS.

Emerging Markets. This group now consists of 37 funds, of which 18 are individual countries like China (NYSEARCA:FXI) and Brazil (NYSEARCA:EWZ), but not to be left behind, Israel (NYSEARCA:EIS), Thailand (NYSEARCA:THD), and Turkey (NYSEARCA:TUR) now have their own ETFs. There are 12 funds that we call "Continents and Regions" where you can own an area of the world like Latin America (NYSEARCA:GML). The rest are fully diversified funds covering all emerging market countries.

Real Estate. There are now 27 real estate funds – 18 focused on the US Real Estate market and 9 on International markets. These products are so diverse that you can now invest in just office buildings, apartments buildings and even mortgage REITs. There's now an ETF that allows you to invest in Chinese Real Estate (NYSEARCA:TAO). You can now invest in real estate everywhere but the US (NYSEARCA:WPS).

Right now, with the 38 funds that collectively focus on currencies, lifecycle, TIPs and world markets, there's not as much going on that's as interesting as in our other classifications, but you can be assured that where there are open opportunities, the ETF provides will surely attempt to fill the gaps! Stay tuned….

Disclosure: None

Source: 700 ETFs and Counting: A Bird's-eye View