ETFs have gotten so popular that they’re increasingly appearing in more and more exotic incarnations. Investors should understand how they work before diving in sight unseen, though.

ETFs have morphed into several exotic forms, covering a number of market niches in nearly every way possible. Don Dion for TheStreet explains that these newer “non-traditional” ETFs area newer generation and that they do add some level of risk that more traditional ETFs don’t have:

Fund of Fund ETFs Can Be Fun For Investors Who Want to Take It Easy

ETF managers have taken a cue from hedge funds and mutual funds and created ETFs that specifically hold shares of other ETFs. It’s like a one-stop-shop for investors.

The proliferation of ETFs has given way to some creative ETF ideas and strategies, and they keep getting even more creative. PowerShares introduced three funds of funds in May, one of which was PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio (PAO). The expense ratio is at 0.25% and the ETF has gathered $8 million in assets.

In May, PowerShares launched a trio of groundbreaking new products—dubbed “autonomic” funds by the PowerShares marketing pros—based on indexes from New Frontier Advisors, a Massachusetts-based quantitative research and investment consulting company that uses a methodology called Resampled Efficiency™, a patented portfolio optimization technique.

The Autonomic Growth NFA Global Asset Portfolio (PTO), the Autonomic Balanced Growth NFA Global Asset Portfolio (PAO), and the Autonomic Balanced NFA Global Asset Portfolio (PCA) are essentially prefabricated ETF portfolios that rebalance themselves every quarter according to the target allocation ratios stated in each fund’s prospectus.

By Heather Bell

NEW LISTINGS

PowerShares Launches First ETFs Of ETFs

Floyd Norris today brings up the question of mutual fund fees, which gives me a good excuse to revisit the ETF-squareds I wrote about yesterday. By coming up with an extra service (quarterly rebalancing) they justify an extra 25bp in annual fees; I was dubious as to whether that was much of a deal for any investor. After all, there are S&P 500 index funds charging just 7bp which have to benchmark a very specific portfolio of 500 stocks.

The Condor Options blog agrees that 25bp seems a bit steep:

Active ETFs Gaining a Tepid Response So Far

After all that talk, actively managed ETFs are so far bringing passiveness from investors now that they're here.

Ian Salisbury for the Wall Street Journal reports that these funds, after years of anticipation and back-and-forth with the Securities and Exchange Commission, haven't gathered assets as quickly as other new ETF launches have in the past.

Remember Ron Lieber's catchy little slogan? "Index (mostly). Save a ton. Reallocate infrequently." Turns out, here's a new ETF out there which doesn't just do the indexing for you, it does the reallocation as well. To be precise, there are three of these ETF-squareds, and they're listed on the Amex under the tickers symbols PTO, PAO, and PCA. All of them, interestingly, comprise nothing but other ETFs.

PowerShares Autonomic Growth NFA Global Asset Portfolio ETF (PTO) is the most aggressive, with 90% equity and 10% debt; PowerShares Autonomic Balanced NFA Global Asset Portfolio ETF (PCA) is the most conservative, with 60% equity and 40% debt. All of them have a 5% or 6% real-estate component (included in equity), with the rest of the equity split roughly 42-58 between US stocks and the rest of the world. Both the equity and the bond holdings are very diversified, and there's even a small 2% to 3% stake in commodities and currencies, included in the debt allocation.

By Heather Bell

PowerShares once again broke new ground in the exchange-traded fund industry with the launch of the first ETFs of ETFs, the PowerShares Autonomic Global Asset Portfolios. The three funds were launched Tuesday on the American Stock Exchange and track indexes of ETFs designed by Boston-based advisory firm New Frontier Advisors [NFA].