NEW YORK ( TheStreet) -- As major ETF providers attempt to steal away market share from one another, they risk stepping on their own toes and leaving investors overwhelmed with redundancy.

Long lauded as the leader in the field of low-cost index-based mutual funds, Vanguard's assault on the world of exchange traded funds has been undoubtedly impressive.

Although the firm is still relatively new the game, its popularity has taken off, driving it to third place among the top ETF providers in terms of assets, just behind BlackRock ( BLK) and State Street ( STT).

Late last week, Vanguard unveiled its latest effort to stay ahead of the competition, when it announced ambitious plans to launch 19 funds. These products will be offered as mutual fund shares and ETF shares. In addition, Vanguard also will offer ETF shares of its S&P 500 Index fund for a total of new ETFs.

These products include three municipal bond funds as well as an international real estate focused product. The remaining 16 products will track various slices of the broad U.S. market using the popular Standard and Poor's (a division of McGraw-Hill ( MHP)) family of indexes as well as Russell indexes.

Aside from tracking the popular indexes, Vanguard's new products will challenge existing S&P funds on costs. The expense ratio on Vanguard's new Vanguard S&P 500 ETF is 0.06%, making it four basis points cheaper than SPDR S&P 500 ETF ( SPY) and 3 bps cheaper than iShares S&P 500 Index Fund ( IVV).

Vanguard's decision to launch an S&P-linked product is clearly an attempt to draw investors away from popular products such as SPY and IVV. However, aside from being able to tack on the S&P and Russell name on their new funds, there doesn't appear to be much added benefit to investors in launching these products.

The chart below compares the performance of the S&P 500 versus the S&P-linked ETFs provided by State Street and iShares, and the broad Vanguard Large Cap ETF ( VV) throughout 2010.

Rather than tracking the S&P 500, the Vanguard Large Cap ETF is designed to track the MSCI US Prime Market 750 Index. However, as you can see, the fund still does a good job tracking the S&P as well as ETFs based on the index.

Aside from VV, Vanguard already manages ETFs which effectively track baskets of companies that perform similarly to indexes such as the S&P 500, S&P MidCap 400, S&P SmallCap 600 and their respective growth and value oriented slices.

In terms of performance, by launching new products linked specifically to the S&P 500 and its variants, the company will effectively be introducing an element of redundancy to their product line.

With the introduction of Vanguard's S&P focused ETF product line, investors are presented with another variable to consider when developing a portfolio. In the past, investors could generally be confident that, though across providers there may be some overlap, within each fund company's personal collection of products each individual fund boasted exposure to a unique slice of the overall market.

Now that Vanguard will offer funds that duplicate the performance of other Vanguard funds, investors run the risk of double dipping if they fail to do their homework.

The ETF wars are far from over and fund providers will likely continue to use attractive index names and pricing gimmicks to drive investors into their products. In the end, rather than label and bargain shopping, investors should be more focused on constructing a well diversified portfolio of liquid ETFs that can weather economic storms while providing plenty of upside opportunity in times of market strength.

-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management was not long any of the equities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.