So Many Niche ETFs, So Few Investors Who Care

Exchange-traded funds have been on a tear for the past two years as providers went on a land grab to stake a claim in as many unique investment ideas as possible.

But some people think there could be a long-overdue shakeout in 2008 as more and more new products compete for investor attention -- and an increasingly limited pool of seed capital.

ETFs are baskets of securities that track indices. They trade on an exchange like stocks.

So far in 2007, 283 new funds have launched according to Morningstar, an 83% surge over last year, when 155 funds hit the market. And the 155 launches in 2006 were themselves a 75% increase over 2005.

Assets under management are also up more than 40% this year over 2006. But the growth has been concentrated in a relatively small number of large funds. Many of the new funds hitting the market are niche products tracking narrow sectors of the market that have failed to capture investors' imaginations.

This brought us such innovative -- or, depending on your perspective, wacky -- funds as the FocusShares ISE-Revere Wal-Mart Supplier Index Fund(WSI), which holds companies that derive a large portion of their revenues from sales to Wal-Mart (WMT), and the Claymore/Robb Report Global Luxury Index ETF (ROB), which tracks companies whose primary business is the provision of global luxury goods and services.

It wouldn't be shocking to see firms liquidate and close some of their least successful funds.