Ask TheStreet: So Many ETFs

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I want to invest in sector ETFs. How do I choose between the different options in a given sector? Thanks, Z.V.

The rapid proliferation of new ETFs can be viewed as a good development, as it gives investors more options to choose from.

But it can also make deciding between similar products very challenging. For instance, Morningstar.com lists 24 ETFs that represent some slice of the technology market, 22 natural-resources ETFs, 15 financials ... you get the picture.

There are a lot of products out there, and they're not all created equal.

Before buying an ETF, there are several things to consider, but two of the biggest questions you should ask are what exactly am I buying, and how much am I paying for it.

Consider the first point: While several ETFs may represent the same sector, the indices that they track can vary greatly in terms of which companies are included, number of holdings (which can affect volatility), how the securities are weighted and how long the index has been around (some people aren't comfortable relying on back-tested data).

To better illustrate this point, take a look at some of the financial-sector ETFs.

One option is the Financial Select Sector SPDR (XLF Quote). This ETF tracks the financial stocks that are included in the market-cap-weighted S&P 500.

The resulting portfolio includes 87 of the largest U.S. financial stocks. While 87 holdings is nothing to scoff at, that's a lower number than many of its peers. It is also particularly concentrated, with about 50% of its assets in the top 10 holdings.