10 Most Dangerous ETFs Countdown

Today's first installment of my 10 most dangerous ETF countdown addresses issues of liquidity, psychological trading barriers, developing market risk, potential regulation and complex methodologies.

The ETFs mentioned in the first part of the series are Elements Benjamin Graham Large Cap Value ETN (BVL - commentary - Trade Now), TDX Independence 2040 ETF (TDV - commentary - Trade Now), Claymore/BNY Mellon Frontier Markets (FRN - commentary - Trade Now), UltraShort Health Care ProShares (RXD - commentary - Trade Now) and iPath S&P 500 VIX Mid-Term Futures ETN (VXZ - commentary - Trade Now) / iPath S&P 500 VIX Short-Term Futures ETN (VXX - commentary - Trade Now).

It is essential to note that some of the funds, particularly the VXZ and VXX, are appropriate for some sophisticated traders. The purpose of the countdown is to warn average buy-and-hold investors against the risks of some of the funds out there.

Quite often, ETFs that look great on paper trade very poorly in the open market place. Sometimes, the structure and daily trading of ETFs is not conducive to the types of strategies that fund issuers are looking to execute.

Something like the TDV might sound good in theory but work poorly in the ETF universe. The reality of ETFs is that they trade constantly throughout the day, and need volume and trading to operate properly. The reality of target date funds is that they are intended to be a long-term investment, where you set aside capital and resist withdrawing it until your retirement target date. These two realities do not necessarily mesh up well.

The growth of the ETF industry is beneficial for investors looking for new and innovative ways to access the global markets and diversify their portfolios. Now more than ever, it is important to be mindful of issues like liquidity, balance and suitability before selecting a new ETF investment.

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At the time of publication, Dion did not hold any positions in the ETFs mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.