ETFs Evolve, Playing Bigger Role in Portfolios

Northern Trust(NTRS Quote) is shutting its NETS line of exchange traded funds -- which listed last year and focused on individual countries. iShares got a 12-year head start in this space, so NETS never drew enough assets to ensure viability.

Although ETFs have been around in the U.S. since 1993, they have only begun to proliferate in a meaningful way in the past few years. Exchange traded funds are now a popular wrapper for investing, and companies have tried to meet demand by delivering more funds, some specialized and others broad-based. But not every fund can be a hit and, thus, some must close. (A point of clarification: If you own an ETF that closes, it will pay out the net asset value calculated on the final day of trading. That may create an unwanted taxable event but not a wipeout.)

ETFs will continue to evolve, as will portfolio construction, with new products, and it behooves investors to stay current on new listings and explore whether they could play a role in portfolios.

iPath, the ETN brand for Barclays Global, just filed for two ETNs that will track the VIX futures, one with a one-month expiration and the other five months. The potential for these as a portfolio hedge is exciting and worth studying. Unfortunately for most, me included, VIX is complicated. The ETNs will not track the "spot" price of VIX but instead derivatives of VIX that behave differently than the cash market. There will be a use for the VIX ETNs, though it may not be what most people think or hope for.