Slew of Sophisticated ETFs Hits the Market

"You can see this reflected in volume," says Kittsley. "The homebuilder and biotech ETFs we launched in February were very much driven by the institutional investor."

Michael Sapir, chief executive of ProShares, also emphasized that his company's new products aren't necessarily for beginners. "The target audience for these funds is the sophisticated investor, whether an individual or a financial professional."

"Most people understand how to simply buy a stock, but not short selling. These are for people who understand or are interested in potentially getting short exposure to an index," says Sapir.

Currency Concerns

Rydex says that while its new currency funds were designed for financial professionals, individuals could also use the ETFs for diversification.

"We have seen significant interest from people who wanted more currency diversification," says Tim Meyer, Rydex Investments' ETF business-line manager. "Stocks, bonds and cash have represented what people thought was true diversification. But new strategies are available and currencies and commodities now allow for investors to have a broader and truer diversification."

However, Joel Nathan Ward, president of Learn:Forex and manager of the Joel Nathan ForexFund, notes that for investors to take a long position on a currency, they are betting against the dollar.

"I think there's something to be said for the fact that the dollar will likely weaken in the future, but this is taking a completely one-sided view," says Ward. "If you're wrong, then the only way you're going to get your money is to exit the fund to stop the losses."

He adds that this raises a concern over liquidity. "If everybody's prediction about the dollar reverses, who will take the ETF off your hands?" asks Ward. "For the major currencies, the actual cash market is never going to have that liquidity problem because it is so huge.

Meyer, on the other hand, points out that currency trading can get cumbersome and expensive if investors are in the derivatives market, the spot cash market or if they go to the bank and convert U.S. dollars.

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