New ETFs Can Serve as Caution Signs

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There's something you need to know about that shiny new exchange-traded fund that just launched. Historical evidence suggests you might be better off dumping your investments in that fund's entire sector rather than jumping feet first into that "can't miss" ETF.

Now that there are more than 800 of these investment vehicles available in the U.S. market, management firms are having to dig ever deeper into their inventories of creativity to come up with new concepts to add to their ETF offerings. The bold minds who determined there was an absolute need for ETFs in the areas of "metabolic endocrine disorders" and "dermatology and wound care" investments now have to reach even further for new product concepts. (And in case you were wondering, the HealthShares Metabolic Endocrine Disorders ETF and the HealthShares Dermatology and Wound Care ETF were humanely euthanized some time ago.)

The lag between the emergence of a new investment trend and the time it takes to gain enough validity to convince the ETF industry that it merits a new vehicle can seem interminable. When you factor in the time it takes to design and construction a new ETF offering plus the lengthy registration, approval and listing process, the concept for that fund could easily be at its peak -- or even over the hill -- before the PR machine even begins advertising the fund as the hot place to invest your cash. ...