New ETFs Struggle to Get Off the Ground

One of the big benefits of exchange-traded funds is their liquidity: Unlike open-end mutual funds, which can only be bought and sold once a day, these baskets of securities trade throughout the day on an exchange.

But what happens if you can't unload the shares when you need to? With so many new products competing for the attention of "specialists" who make a market in ETFs, there's a risk that trading will be illiquid.

This was a major theme at an industry gathering in New York last week. Participants at Financial Research Associates' ETF Summit lamented that it's becoming increasingly difficult to raise the money necessary to launch new products, and that this could slow the industry's pace of growth.

"The seed capital the industry has relied upon has run dry just as there are a plethora of products coming to the market," said Agustin Fleites, a former executive at State Street Global Advisors and ProShares. ...