It is not unusual after I publish a list of stocks to get a comment or two asking why those stocks and not these stocks. Often the real thrust of the question is why buy those low yield stocks when you can buy these high yield stocks. The answer involves risk and its management.

Is it wind energy, or is it solar energy? Is it bio-diesel or hydroelectric energy? The debate on what is the best form of clean energy to invest in has been growing like green shoots for years. Let me give you a hint of one possible winner: The Geysers.

The Geysers in California supply power for several plants. These power plants emit only excess steam and very minor amounts of gases. In the Mayacamas Mountains, located 72 miles north of San Francisco, naturally occurring steam field reservoirs below the earth's surface are being harnessed by Calpine to make clean, green, renewable energy for homes and businesses across Northern California.

“Goodbye safe havens, hello risky assets” seemed to be the theme during the past week as investors placed their bets on a global economic recovery, propelling stocks and other risky assets higher amid better-than-expected earnings reports and tentative signs of stabilization in the U.S. job and housing markets.

It's good to know that we're not alone. It seems our neighbors to the north are struggling with the issue of leveraged ETFs as well.

Last week, the Investment Industry Regulatory Organization of Canada (IIROC) issued recommendations aimed at eliminating "inappropriate use" of these funds by investors unaware of their risk profiles and the manner in which they seek to generate their amplified returns. While the announcement indicated their concern regarding the issue, it's unlikely to have any significant impact, and further underscores the difficulties these securities are posing to regulatory agencies.

Although it's generally not released until the middle of the following month, State Street's monthly ETF snapshot always makes for interesting reading. As I thumbed through the May issue this afternoon, I had a number of "yeah, but..." moments - although completely accurate, some of the stats don't tell the whole story. But before we get into that, a few of the highlights:

• As of May 31, 24 ETF managers maintained 728 ETFs with total assets under management of $587 billion.
• ETF assets rose $56 billion in May, or 10.6% from the previous month.
• Five new ETFs were launched in May, while 19 ETFs were closed, resulting in a net decrease in the number of funds of 14.
• All 12 of SSgA's ETF categories recorded increases in assets during the month, with Specialty ETFs (23.3%) and International ETFs (21.9%) the biggest gainers.
• The largest three ETF managers made up nearly 85% of the U.S.-listed ETF market.

Manager	Assets ($MM)	Market Share
iShares	$290,707	49.5%
State Street	$143,653	24.5%
Vanguard	$59,503	10.1%
ProShares	$26,055	4.4%
BNY	$20,255	3.5%

In the week during which the Obama administration will unveil details surrounding its plan to revamp the regulation of the U.S. financial sector, calls for increased oversight of the ETF industry are picking up steam as well. Scott Burns, director of ETF Analysis at Morningstar, recently laid out a case for increased regulatory requirements for ETFs that use derivatives to achieve their objectives.

But I'm not quite convinced that more regulation is the answer.

President Barack Obama is expected this week to announce sweeping changes to the way the much-maligned U.S. financial industry is regulated. The changes, which are to be unveiled Wednesday, are expected to include the development of a more centralized regulation system and enhanced consumer-protection capabilities.

Speaking on the new developments, Treasury Secretary Timothy Geithner commented that the current regulatory system "was fundamentally too fragile and unstable and it did a bad job of protecting consumers and investors."

Countless statistics have been complied to illustrate what most in the financial services already know: the ETF industry is expanding with astonishing speed, eating into the market share of traditional portfolio powerhouses such as mutual funds.

Perhaps most indicative of this trend is the fact that in 2008, during the worst recession in a generation, investors poured $178 billion of new money into ETFs, while taking $320 million out of mutual funds.

BlackRock (BLK), considered the favorite to land highly coveted iShares, announced Thursday evening that it had agreed to acquire Barclays Global Investors (BGI), including its market-leading iShares ETF platform, from Barclays PLC. The combination of the two firms marries leaders in both active and passive asset management strategies to create one of the largest investment management companies in the world. The combined entity, which will do business under the name BlackRock Global Investors, will have assets under management (AUM) of approximately $2.7 trillion.

Gone Shoppin'

Leveraged ETFs are among the most actively-traded securities on any market in the world today, with some turning over several times daily and maintaining average investor holding periods of less than an hour. And their popularity appears to be on the rise, as these funds regularly top the list of monthly ETF inflows released by the National Stock Exchange. The amount of interest in these funds certainly isn't surprising - the temptation to double or even triple the daily returns of a well-known benchmark is tempting, especially for day traders who make their living moving in and out of positions with a frequency that would make most buy-and-hold investors faint. But to generate amplified returns, leveraged ETFs utilize a number of complex strategies that don't always ensure perfect results. But just how close do they come?

All in a Day's Work

As the Chinese economy has surged over the last decade, investors unafraid to reach beyond their borders and embrace international equity investments have been handsomely rewarded. As a result of easing economic barriers and sound economic policies, China has now passed Germany for the number three spot on the list of the world's largest economies. And many believe that it is only a matter of time before China passes Japan and the U.S. as well. Yet the portfolios of many U.S. investors maintain little exposure to the Chinese markets. "If you read the paper, you know that China is at least the second most important economy in the world today," notes Kevin Carter, CEO and Chief Investment Strategist of AlphaShares. "Yet the average investor has less than 2% of their money in China and most have none."

Bright Spot Under a Dark Economic Cloud

As the ETF industry has exploded onto the scene in recent years, sponsors have aggressively launched funds in an attempt to gain market share. While many of these new ETFs have attracted sufficient investor funds to justify continued operation, some have failed to garner a level of investment necessary to support an active, liquid market and been shuttered. And then there are those that remain in business but are cited as having "insufficient liquidity." Although there are certain rules of thumb – assets under management (AUM) of $25 million and daily volume of 25,000 are often cited as “liquidity thresholds” – there is no hard evidence to support these guidelines. In an effort to determine where illiquidity ends and an active market begins, I analyzed the impact of size and daily volume on the liquidity of various ETFs.

To start, I divided ETFs into six baskets based on three-month average daily volume:

It's been an exciting start to the month of June for the ETF industry, with announcements of new funds coming seemingly on a daily basis.

Already this month Old Mutual, ProShares, Global X, BMO, WisdomTree, IndexIQ, and Grail Advisors have expanded or announced plans to expand their ETF product lines. Included in these launches were several noteworthy funds, including the first Peru ETF (Global X), additional actively-managed funds (Grail), and strategy-specific hedge fund ETFs (WisdomTree and IndexIQ).

With an astounding rate of hedge fund closures coinciding with the introduction of hedge fund ETFs to the market, I wrote last week that we may see a gradual changing of the guard in the industry. I might have been wrong. It might not be so gradual. Over the last week, several new niche hedge fund ETFs have popped up, with more ETF sponsors getting into the game and jostling for investor dollars.

First, WisdomTree, known for its fundamentally-weighted indexes and actively-managed currency ETFs, announced that it is entering into the hedge fund arena with three ETFs:

Treasury officials announced on Tuesday that ten of the nation's largest banks have met the necessary requirements to repay part of the highly-controversial bailout funds injected into the financial sector in late 2008.

The announcement paves the way for the banks, including JPMorgan Chase (JPM), Goldman Sachs (GS), and Morgan Stanley (MS), to return up to $68 billion of the government funds and exit the Troubled Asset Relief Program (TARP). Despite what many interpret as good news, equity markets were generally unchanged Tuesday, with bank ETFs rising slightly.

By Bob O'Brien

Last year when oil went to $147.00 barrel many people blamed the traders, but this was not the full story at all.