Market Will Judge New ETFs

An article by my colleague Jen Ryan on TheStreet.com questions whether there are too many ETFs, with detailed quotes from the usual suspects in the mutual fund industry.

Exploring the topic is worthwhile, but I'm not sure the opinions from the experts are.

This might be all you need to know:

Exxon Mobil's market cap = $397 billion
All assets in U.S. ETFs = $363 billion

As Jen points out, $106 billion of the total is in the three largest ETFs, leaving $257 billion allocated to the rest of the industry.

That dollar amount does not represent a frenzy of buying on the part of "stupid" individual investors.

It is true that a lot of ETFs have come to the market of late and it is very likely that the rate of new listings will accelerate.

There is no question that some of them will be useless. This will be evidenced by a lack of money flowing into them, which will eventually force a closure, like the SPDR O-Strip ETF that was shuttered on Sept. 13.

This is just capitalism at work, as investors vote with their dollars.

Star Light, Star Not So Bright

Whenever I read an article that takes a swipe at ETFs, there will invariably be a negative quote or two from someone at Morningstar. It was very slow to acknowledge that any ETFs had investment merit.

Anytime there is something new in the industry, it can be counted on to be one of the naysayers, so I take what Morningstar says with a huge grain of salt. If I were more of a cynic, I might think it had some sort of agenda in talking down new ideas that don't involve open-ended funds.

Recently, ETF Securities listed almost 30 ETFs on the London Stock Exchange that track individual commodity prices. They provide easy access to commodities through brokerage accounts without having to deal with contract expirations or leverage.