THE YEAR OF THE ETF 2

This year it seems as though the rest of the world has caught on to what I’ve been saying for years regarding exchange-traded funds (ETFs). Let’s take a quick look at the numbers and you’ll see what I mean.

At the end of 2005, there were a total of 221 ETFs in the market.

With about two weeks to go in 2006, the total ETF count now is 369.

That’s a whopping 148 new ETFs added to the market in just over 11 months. That’s growth my friends, and that growth doesn’t surprise me one bit.

I must say that if there is one thing Wall Street is really good at, it’s creating products that will sell. Sometimes these products aren’t very good. Other times, they hit the mark big time. The latter situation occurred with the rollout of many new ETFs this year.

I remember earlier this year when we saw some investment gurus crying foul about the number of ETFs now available. Obviously, these people aren’t big advocates of low cost, objective management, transparency, ease of trade and good performance. I say that because, by and large, those are the qualities you get when you opt for an ETF.

Of course, not every ETF is a winner, just like not every stock is a winner. Many ETFs failed to do very well this year. Still, I think when the final numbers for the year are tallied, ETFs will have outperformed the majority of their mutual fund counterparts.

The above table lists what I think are some of the best ETFs to come to the market this year. Now when I say best, I am not talking strictly about performance. I am talking about the most interesting, i.e., the biggest and best new twists in ETF land.

First off, we have a slew of bear market ETFs now available to us. These ETFs move the inverse of the major indices, so if the Dow, S&P 500, Nasdaq 100 or S&P MidCap 400 are getting crushed, these funds are jumping for joy.
Another great category to emerge this year is the leveraged ETFs. If you feel like swinging for the fences, there’s no better way to do so than to get twice the performance of a major stock average. Of course, with added leverage comes added risk. But used judiciously, these leveraged ETFs can really boost your overall performance.

Another new twist on index investing is the equal-weighted index ETFs. Rather than delivering a market-capitalization weighted return, such as those tracked by most major index ETFs, the equal weight ETFs spread out their investment equally in each company. This equal weighting offers less exposure to volatility than traditional equity index ETFs do, and that means they are good choices for the long term.

Finally, we saw the emergence of some very narrow sector ETFs this year. These are ETFs that take advantage of specialized sectors such as oil, gold, silver, private equity and even insider trading. You gotta love the innovation here with these funds. Given the right market conditions, I definitely think these narrow sector funds can help investors make some nice money.
Using this rich bouquet of new ETFs to make BIG profits is what my ETF TRADER service is all about. In fact, we’ve used several of these newly minted ETFs to capture double-digit percentage gains, in some cases, in as little as a few weeks.

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