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ETFs: They're Coming, They're Coming on Strong

A storm of new offerings is approaching.

If you're already feel deluged by exchange-traded funds, or ETFs, just wait.

In the coming weeks and months, more and more of these tradable funds will start appearing -- increasing the chances of total bewilderment.

First, you can expect to see more index funds, similar to the ones that already exist, from firms like

Vanguard

,

State Street Global Advisors

and

Nuveen Investments

.

ProFunds

, a firm known for its leveraged index funds, is looking at introducing its own exchange-traded funds.

Tradable bond funds are also on the horizon, although you probably won't see one until next year at the earliest. Actively managed ETFs will eventually appear, but first someone has to come up with a way to create one.

Next!

Unlike traditional mutual funds, the shares of ETFs are priced throughout each trading day and trade just like stocks. Most conventional mutual funds are priced once a day at the close of trading. This frequent pricing, coupled with lower costs and tax efficiency, has made these funds an attractive alternative to index funds.

ETFs already command more than $50 billion in assets, and in five years that number could hit $200 billion or more by some estimates.

This year, the number of ETFs has exploded, and it will only keep growing. At the beginning of the year, there were 30 of these tradable index funds. Then

Barclays Global Investors

came along and more than doubled that number by launching 35 new ETFs, called

iShares

.

And Barclays isn't done. Lee Kranefuss, CEO of the firm's individual investor business, says Barclays is in the process of preparing its next set of funds. For one, the firm will soon launch a

S&P 100

index fund that will trade on the

Chicago Board Options Exchange

rather than on the

American Stock Exchange, where the existing ETFs trade.

State Street already runs the $21 billion

Spider

TST Recommends

, the oldest ETF that tracks the

S&P 500 index. Later this month, the firm expects to introduce 10 additional ETFs that will track indices including the

Morgan Stanley High Tech 35

index.

This fall Nuveen, known for structuring unit investment trusts, will reveal the ETFs that it expects to launch.

Earlier this year Vanguard announced its plans to introduce a new tradable share class for five of its existing index funds, including its mammoth

500 Index

fund. (The shares will be called

Vipers

, for Vanguard Index Participation Equity Receipts.)

Before these new shares appear, Vanguard must receive regulatory approval. There's also the matter of the lawsuit filed by

McGraw-Hill

on behalf of its Standard & Poor's unit over its licensing agreement with Vanguard.

But once Vanguard's Vipers do start trading on the American Stock Exchange, the door could open for other major fund companies to follow suit.

Even now, other firms are looking at the possibility of introducing their own ETFs. ProFunds is doing just that, although CEO Michael Sapir says the firm hasn't made any final decision about the funds the firm would launch.

However, the small firm specializes in juiced-up index funds that use leverage to amplify the returns of indices like the

Nasdaq 100. An ETF that tries to do the same would be an innovation but would probably have limited interest among average investors.

Firms such as Barclays are looking at launching tradable bond funds. (Barclays reportedly plans to launch a bond ETF in Canada to avoid regulatory hurdles that have slowed the process in the U.S.) And professionals are clearly looking at ways to launch ETFs that are run by actual portfolio managers. However, no firm has stepped up to say publicly it wants to be the first to introduce one.

The catch in creating an actively managed ETF is the transparency of the underlying portfolio.

Existing ETFs all track stock indices, so institutional investors and traders know at any given time which stocks make up each of the funds. This information is key in creating new shares of the exchange-traded portfolios and allowing market makers to hedge, or offset, the risk they bear in trading these instruments.

However, that requirement becomes an impediment when talking about actively managed funds. No fund company or fund manager would want to regularly reveal everything that's in a fund. In fact, the manager and shareholders could be at a disadvantage if everyone knows what's in a fund at all times.

For now, you'll have to be satisfied with the numerous tradable index funds that exist or will appear in the near future.

Frankly, there are already enough funds to create confusion. With so little information available about the existing ETFs, you can't easily compare one with another.

And it's only going to get worse.

Send your questions and comments to

deardagen@thestreet.com, and please include your full name.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.