But not all ETFs offer bargain basement expense ratios. As the product offerings have become increasingly specialized and targeted in recent years, average fees have been on the rise. This trend isn’t necessarily attributable to issuer greed (the low end of the expense ratio range has expanded as well), but rather to increasing complexity and granularity of exposure available through ETFs. Replicating the S&P 500 is a relatively simple task, but tracking the performance of more complex strategies or far-flung markets often incurs additional costs. There are now a handful of ETFs that have seen expense ratios climb above the 1% mark, venturing into mutual fund territory. Below, we highlight five ETFs that charge an expense ratio of at least 1.0%.

5. Market Vectors Gulf States Index ETF (MES): Expense Ratio = 1.0%

This ETF tracks the Dow Jones GCC Titans 40 Index, a modified cap-weighted index that tracks the performance of equity markets in the Gulf States. With major allocations to Kuwait (41%), the UAE (27%), and Qatar (22%), this fund offers exposure to a basket of securities most investors would have difficulty accessing otherwise.

4. IndexIQ Hedge Macro Tracker ETF (MCRO): Expense Ratio = 1.10%*

MCRO is designed to replicate the performance of the IQ Hedge Macro Index, a benchmark that replicates the risk-adjusted return characteristics of a combination of hedge funds pursuing a macro strategy and hedge funds pursuing an emerging markets strategy.

Like other hedge fund replication ETFs from IndexIQ, MCRO is an “ETF of ETFs,” meaning that its underlying holdings are not stocks and bonds but rather other ETFs. While this strategy is an efficient way to pursue complex strategies that include exposure to multiple asset classes, it also has the potential to increase expenses by creating multiple levels of costs. MCRO charges an expense ratio of 75 basis points, but the acquired fund fees and expenses from MCRO’s underlying holdings add another 35 basis points, resulting in an effective expense ratio of 1.10%. A big reason for MCRO’s sizeable acquired funds expense is the 20% allocation to EEM, which charges 72 basis points.

3. S&P GSCI Enhanced Commodity Total Return ETN (GSC): Expense Ratio = 1.25%

Exchange-traded commodity products tend to be on the expensive side, but this product from Goldman Sachs is expensive even for natural resource exposure. GSC is linked to the S&P GSCI Enhanced Commodity Total Return Strategy Index, a benchmark that serves as a composite of commodity sector returns representing an unleveraged, long-only investment in a diversified basket of commodity futures. This ETN charges 1.25% in expenses, significantly higher than other diversified commodity products. DJCI, for example, charges an expense ratio of just 0.50%.

2. Dent Tactical ETF (DENT): Expense Ratio = 1.56%

This ETF from AdvisorShares is one of the early entrants in the active ETF race. DENT doesn’t track the performance of any benchmark, rather it seeks to deliver long-term growth of capital by identifying, through proprietary economic and demographic analysis, the overall trend of the U.S. and global economies and how consumer spending patterns may change.

Similar to MCRO, DENT is an ETF of ETFs, currently maintaining ten approximately equal positions in sector-specific and broad-based funds from various ETF issuers. DENT charges a management fee of 95 basis points, but 44 basis points in additional fees and another 17 in acquired fund expenses brings the total cost to 1.56%.

1. PowerShares CEF Income Composite Portfolio (PCEF): Expense Ratio = 1.81%*

This ETF is based on the S-Network Composite Closed-End Fund Index, which tracks the performance of closed-end funds that invest in investment grade fixed income securities and high yield fixed income securities, as well as those that utilize an equity option writing strategy. PCEF charges an expense ratio of just 50 basis points, but acquired fund fees and expenses of 1.31% results in an “all-in” expense ratio of 1.81%.

This expense ratio hasn’t deterred many investors; PCEF has accumulated nearly $40 million in assets less than a month after its launch.

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Disclosure: No positions at time of writing.

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Claims of saturation in the ETF industry have some merit. In recent years, ETF issuers have rushed products to market under the assumption that exposure to a unique market or sector would result in sufficient demand. There are more than 250 ETFs with less than $20 million in assets, many of which have been around for several years. The economics of an industry that has boomed in large part because of ultra-low expense ratios are challenging, meaning that for many of these smaller ETFs, the days are numbered.

But there are a lot of good ideas out there that haven’t been executed. Last month, we lamented that there is still no exchange-traded product offering targeted exposure to either the domestic or international automotive industry (the most effective play may actually be through platinum and palladium ETFs). This month, we make a case for the ultimate equal-weighted ETF as a potential alternative to cap-weighted products that dominate so many investor portfolios.

RSP + EQL = ???

While the bulk of equity ETF assets are in funds that are linked to market capitalization-weighted benchmarks (such as the S&P 500 or Russell 3000), a number of products offering alternative weighting methodologies have popped up as well (see a closer look at all of these strategies here). The Rydex S&P Equal Weight ETF (RSP) is one fund that has seen its popularity surge, nearly tripling its assets over the last year. RSP tracks the S&P Equal Weight Index, which includes all constituents of the S&P 500 in equal weights. As such, RSP is (to some extent) “market cap blind” in that it isn’t dominated by a handful of mega-cap equities. Moreover, an equal weighting methodology avoids the primary drawback of cap-weighting: the tendency to overweight overvalued stocks and underweight undervalued stocks.

Another interesting fund is the Equal Weighted Sector ETF (EQL), which invests in equal proportions in the nine Select Sector SPDRs. So the allocation to energy is the same as the weight given to technology, industrials, and materials. By giving an equivalent allocation to each sector, EQL limits the extent to which a crash in a specific part of the economy (such as technology in the early 2000s or financials in 2008) adversely impacts value. Moreover, this strategy provides the opportunity to participate in a rally in sectors ignored by the S&P 500 (such as materials, telecom, or utilities, which each account for less than 5% of the S&P 500). See Why EQL May Be A Better S&P 500 ETF Than SPY for more on this fund.

Both of these strategies have some clear advantages over traditional cap-weighted ETFs that . So why not combine the two to make the ultimate equal weighted S&P 500 ETF? Each sector would be given an equal weight (a la EQL) and component companies within each sector would be weighted equally as well (a la RSP). Constructing such an ETF wouldn’t be all that challenging, as Rydex already offers a line of nine equal-weighted sector funds. But it could potentially be a big hit with investors looking for an alternative to SPY.

For more ideas on potential additions to the ETF universe, see Ten ETFs Than Don’t Exist, But Should. For more insights into the ETF industry sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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One fund that continues to lose ground is the iShares MSCI Emerging Markets Index Fund (EEM), which saw $2.4 billion in outflows on the month. EEM’s primary competitor, the Vanguard Emerging Markets ETF (VWO) took in $1.1 billion, making it the sixth largest U.S.-listed ETF by assets and drawing it closer in size to its still-much-larger rival.

Both EEM and VWO track the MSCI Emerging Markets Index, but there are several significant differences between the two products, including a big gap in expense ratios (see Five Critical Differences Between VWO And EEM). EEM has now seen cash outflows of $2.4 billion on the year, by far the biggest drain of any U.S.-listed ETF.

Other ETFs that continue to be popular among investors include funds focusing on inflation-protected bonds (TIP) VIX futures (VXX), platinum (PPLT), and short-term bonds (CSJ, SHY).

Overall, Vanguard continued to gain ground on iShares, taking in $2.2 billion while iShares experienced cash outflows of $1.2 billion. Other issuers enjoying big February inflows included State Street ($2.7 billion), ProShares ($860 million), PowerShares ($620 million), and Direxion ($299 million). Several smaller issuers saw big gains in relative terms: monthly inflows for Schwab, PIMCO, Old Mutual, Global X, Emerging Global, and IndexIQ all topped 10% of January assets.

Domestic Equities Bounce Back

The rapid expansion in the ETF industry last year occurred despite big outflows from U.S. equity funds, as international equity, fixed income, and commodity products saw huge surges in popularity. January saw a partial reversal of that trend, as domestic equity ETFs brought in $4.9 billion in cash and international funds saw $2.3 billion in outflows. Fixed income continues to be popular, taking in $2.4 billion on the month, while commodity products lost nearly $1 billion in assets.

See a summary of all the new ETF product launches and filings in this feature. For updates on the ETF industry, as well as actionable ETF investment ideas, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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“Legg Mason’s plan to get into the rapidly expanding ETF industry comes on the heels of a year that saw several fund industry giants toss their hats into the ETF ring,” writes John Gabriel for Morningstar. “After dragging their feet for several years, many fund companies are now embracing the opportunity to capture a slice of one of the most popular and fastest-growing segments of the asset-management industry.” Legg joins T. Rowe Price, PIMCO, and Goldman Sachs as major players in the financial services industry gearing up for a run at actively-managed funds.

Slow Start, Huge Potential

The first actively-managed ETF was launched in March 2008 by a most unlikely issuer: Bear Stearns debuted the Current Yield ETF (YYY) just before collapsing. JP Morgan kept YYY around for a while, but ultimately pulled the plug. The next pioneer PowerShares, which launched four active ETFs in April 2008 and another in November of that year. In May of 2009, Grail Advisors entered a new frontier of the actively-managed ETF space by launching the American Beacon Large Cap Value ETF (GVT). Unlike the PowerShares active products, which rely primarily on quantitative analysis, GVT allows manager discretion in the selection of its underlying holdings, making it the first true active ETF in the eyes of many investors. Grail has since expanded its product line to seven funds, including two bond and five equity ETFs.

When Grail launched GVT, many industry analysts (ETF Database included) anticipated an opening of the floodgates. But the surge in active ETFs is yet to materialize, as the active ETF space remains a relatively small community. In addition to the funds from PowerShares and Grail, AdvisorShares offers the Dent Tactical ETF (DENT) and PIMCO has launched three active bond funds (MINT, SMMU, and MUNI). WisdomTree also maintains a line of actively-managed currency products. In total, only about 3% of the ETFs in the ETF screener are active, and these funds account for a much smaller percentage of total ETF assets.

Despite the relatively slow start, there are plenty of reasons to believe that actively-managed ETFs will see a surge in use in coming years. It’s important to remember that the first passively-managed ETF was launched in 1993, and the industry didn’t enter its “golden age” until more than a decade later. Mutual funds aren’t going to give up ground to ETFs without a fight. But the attractive aspects of passive ETFs–lower costs and potential for enhanced tax efficiency–are still very applicable and achievable in an active setting. Moreover, the “disclosure dilemma” that many advisors worried would be an insurmountable obstacle has been proven to be a non-issue, a fact that should increase the comfort level of advisors when using active ETF products.

The entrance of firms like T. Rowe and Legg into the space would likely provide a nice boost, just as PIMCO’s foray into the space did for active bond ETFs. But the real gamechanger may come from an issuer already very active in the space: Grail is reportedly near a deal to convert an established mutual fund to an actively-managed ETF. If such an arrangement proves to be successful, the active ETF space could potentially skip through the growing pains endured by other areas of the ETF market, and assets could surge overnight.

Stay tuned – the corner of the ETF industry could become very active very quickly.

For updates on active ETFs and other developments in the industry, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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There’s certainly some good support for such a notion. At the end of 2009, approximately 250 ETFs–more than a quarter of the industry–had less than $20 million in assets. The last three years have seen an ETF arms race, as issuers churned out niche products and assumed that investors would be chomping at the bit to get into anything that was first to market. There is little doubt that 2010 will see a wave of ETF closures (it’s started already) as issuers cut their losses on products for which demand never materialized. The “land grab” appears to be winding down, as issuers have begun responding to demand (rather than trying to create it) and success rates of new ETF products has surged.

For all of the alleged overdevelopment in the ETF industry, there still seem to be some rather obvious holes in the coverage blanket. The fixed income ETF space has significant room for expansion, and options for more targeted international exposure are growing rapidly. But there are some good ideas beyond these areas (see these two features outlining ETFs that don’t exist, but should).

Maybe I’m biased (I started my career as an analyst at a “big three” manufacturer in Detroit), but an automotive ETF seems like a slam dunk success. There are already ETFs focusing on airlines (FAA), gaming (BJK), and media companies (PBS). There are two covering the timber sector and at least three focused on water resources. With dozens of consumer products ETFs, it seems strange that no one has brought to market a fund focusing on the Ultimate American Consumer Product.

Sure, the auto industry is a dog whose glory days are behind it, but that doesn’t mean there’s no investment interest. Investors may not be clamoring to add auto exposure to retirement portfolios, but I’m guessing there would be more than a few interested in a car ETF as a short to intermediate term play, in both long and short positions. As the somewhat surprising turnover numbers indicate, ETFs aren’t just for buy-and-holders any more, and more volatile sectors have become popular with active traders. Moreover, Americans love their cars, and investors generally feel more confident investing in companies or sectors whose operations and products they understand clearly. Every car buff in the country would have a strong opinion on where this fund would be going.

Despite (or perhaps because of) less-than-impressive results in recent years and an uncertain outlook, the auto industry hasn’t fallen off of investors’ radar screens. Ford (F) trades nearly 200 million shares daily, with volumes surging when monthly sales data and other statistical bulletins are released. With the prospects of the entire car industry hinging on so many unique factors–everything from climate change initiatives to China demand to federal bailout money and stimulus plans–automotive stocks are generally among the most active and widely-traded securities out there.

The rise of the ETF industry shows a clear preference towards owning a sector over owning an individual stock or a handful of companies, a trend that would likely apply to automobiles as well as it has to the financials, tech, and energy industries.

Nuts And Bolts

In addition to the high level appeal, an automotive ETF seems to be very doable, as there are already a number of automotive-specific benchmarks. The MSCI U.S. Investable Market Automobiles & Components Index, for example, is a market capitalization-weighted index of stocks designed to measure the performance of Automobiles & Components companies in the MSCI U.S. Investable Market 2500 Index.

Fidelity already offers an actively-managed mutual fund benchmarked to this index, the Select Automotive Portfolio (FSAVX), and the holdings of this fund (shown here) are a good starting point for a hypothetical ETF. Ideally an ETF could be expanded to a global focus, thereby including companies like Toyota, Honda, Volkswagen, and Nissan, as well as carmakers in emerging markets like India’s Tata and China’s “big five” (Dongfeng, First Automobile Works, Shanghai Automotive Industry, Chang’an Motors, and Chery).

Splitting exposure between car manufacturers and companies engaged in the production of various components (like Johnson Controls, Borg Warner, Autoliv, Goodyear, and Tenneco) would provide exposure to all tiers of the automotive industry, and would significantly increase the number of potential constituents. Getting to 40 components, which would allow our hypothetical auto ETF to avoid giving a significant allocation to any one company, would be no problem.

Besides the fundamental appeal to investors looking to long or short the automotive sector, an ETF issuer out there could certainly come up with a clever ticker to market such a product. Some of the best options are already gone (CAR, MPG, and RPM are all taken), but there are a handful of other possibilities, like AUTO, HORN, MTWN, and CARS.

Already 2010 has seen a wave of new product launches, and ETF issuers are working on dozens more that could hit the market in coming months. Hopefully someone out there is hard at work on an automotive ETF.

For updates on all new ETF products, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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Using the figures from the latest industry snapshot from the National Stock Exchange, a combined Claymore/Rydex ETF family would have total assets under management of about $8.4 billion, making it the seventh largest ETF issuer by AUM. The combined firm would maintain a market share of about 1% of the ETF market.

The marriage of the two ETF firms seems to be a pretty good fit from a product line perspective. Rydex’s ETF products focus around four key areas, including 2x leveraged and inverse leveraged ETFs, equal-weighted ETFs, pure style funds, and CurrencyShares products. Claymore, on the other hand, specializes targeted niche ETFs, such as the Stealth ETF (STH) Defensive Equity Index ETF (DEF), and Insider ETF (NFO). The company also offers several international ETFs, and the line of China products, including the first all-cap (YAO) and small-cap (HAO) China funds, have become particularly popular with investors.

When Security Benefit acquired Rydex more than two years ago, the company seemed poised to burst onto the ETF scene, particularly in the leveraged ETF space that was relatively new at the time. But instead Rydex stalled, suffering from surprising neglect of promising ETF products. The issuer has done almost no marketing to promote its funds, and has been a virtual no-show at industry events and conferences.

The Rydex S&P Equal Weight ETF (RSP) is perhaps the one exception, as this fund accounts for about 30% of total issuer assets. RSP, which holds all components of the S&P 500 in equal proportions, saw more than $500 million in cash flows in 2009, while the remainder of the Rydex products brought in just $200 million. Rydex products are now an afterthought in the leveraged ETF space dominated by ProShares and Direxion, and WisdomTree’s currency products have gained ground on many CurrencyShares products (see a breakdown of the key attributes of currency ETF products here).

We first reported in February’s edition of ETF Edge that a Claymore/Guggenheim/Rydex partnership was imminent, noting that “discussions between Guggenheim and Rydex have been ongoing for sometime, and a deal could be announced as early as February.” (if you don’t have a subscription to ETF Edge, sign up for a free trial or read more here). Now that the deal has become official, it will be interesting to what Guggenheim does to revive the Rydex line of ETF products.

For updates on the ever-changing ETF industry, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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10. Russell MicroCap Index Fund (IWC)

While virtually every investor has exposure to large and mega cap stocks, the same cannot be said for the smaller end of the the spectrum. These securities, which tend to fall into a market capitalization range of between $50 and $550 million, only comprise 3% of the domestic equity market but can often provide investors with diversification benefits and significant growth opportunities due in large part to their small size and growth potential.

Investing in individual micro cap equities is often a very risky business, making this segment of the equity market a great fit for the ETF structure. The fund currently has more than 1,3oo stocks with no one equity comprising more than 0.70% of total assets ensuring. In a corner of the market where bankruptcies and triple digit returns are both relatively common occurrences, this diversification is potentially very valuable. IWC is heavily weighted towards financials (22.6%), technology, (17.7%) and healthcare (16.7%) while offering minimal exposure to utilities and transportation. IWC charges an expense ratio of 0.60%, a reasonable fee for broad exposure to the smallest of the small.

See this Guide to Micro-Cap ETFs for a closer look at IWC and other competing products.

9. MSCI Chile Index Fund (ECH)

When many investors think of rapidly investments in South America, Brazil usually comes to mind. But there’s a lot more to this hot-bed of growth than EWZ. Despite its importance to world economy, Chile continues to fly under the radar of many international investors. Currently, iShares is the only issuer that provides access to this dynamic South American country in ETF form. The fund is heavily weighted towards mining and industrial companies, which make up a significant portion of the Chilean economy and nearly 40% of ECH. This is reflective of the importance of copper to the Chilean economy–the metal is the single largest contributor to the government’s coffers. ECH charges an expense ratio of 0.63% and is up an impressive 52% over the past 52 weeks, thanks in large part to the rapidly increasing price of copper over 2009. For more information about investing in Chile, see this feature article: Forget the BRIC Your Portfolio Needs the TICK.

8. MSCI Kokusai Index Fund (TOK)

TOK is a good example of why investors should never judge an ETF by its name. This fund invests in 22 developed markets around the globe with one notable exception: Japan. While many developed market ex-U.S. funds exist, TOK is one of the few global ETFs that excludes Japan instead of the United States, a feature that has paid off in recent years as the Japanese economy has stalled. TOK is well diversified with over 1,200 holdings and no one security comprising more than 1.75% of the fund. TOK has a heavy tilt towards U.S. equities, which comprise just over 50% of the total assets. The next two largest countries in the fund are the United Kingdom (11.2%) and France (5.4%), with Canada and several European markets rounding out the top ten.

After experiencing incredible growth in the 80’s Japanese markets have been mired in a twenty year “lost decade” of minimal growth. With mounting deficits and negative population growth, many investors are concerned that this trend will continue into the next decade as well. For investors who believe that the Japanese economy will be stuck in the doldrums and left in the dust by its other developed market counterparts, this fund could be a good way to access a diversified index of companies. TOK has an expense ratio of just 0.25% and is up more than 30% over the past year.

7. MSCI All Peru Capped Index Fund (EPU)

Much like the Chilean fund, iShares is the only ETF issuer to provide access to Peru, another rapidly developing South American market. Although Peru has a much lower GDP per capita than its neighbor to the south, the country has a population almost twice as large. This is due in large part to the free market reforms of President Fujimori in the mid 1990’s, a painful period at the time that laid the foundation for opening the country up to investment from foreign nations. Peru has been growing at a steady clip ever since and is poised for long term growth due to its vast reserves of sought after commodities such as gold, copper, and oil.

The fund only holds 26 companies and is heavily concentrated in the minerals sector, with two-thirds of assets going to mining companies. The two largest components of the fund, both mining firms, make up 34% of the total assets. EPU charges an expense ratio of 0.63%.

6. Diversified Alternatives Trust (ALT)

ALT, one of the newest iShares products, represents the company’s first foray into the range of hedge-fund like ETFs. The objective of this fund is to maximize absolute returns from investments in non-traditional asset classes such as forwards, swaps, and futures while seeking to control the risks and volatility inherent in instruments by taking long and short positions in historically correlated assets. This objective is accomplished by using three strategies: technical analysis, yield and futures curve arbitrage, and fundamental relative value comparisons. By exploiting these trends, the fund hopes to produce a Sharpe ratio between 0.50-0.75 with an average portfolio volatility of between 6%-8%.

This may be appropriate for investors seeking to limit their volatility and produce consistent real returns. Although the fund is unlikely to produce outsized gains, it could offer some investors peace of mind who have heavy positions in more traditional low risk investments such as bonds. Currently, the fund has significant long holdings in AUD/USD forwards and short-term Euribor instruments, while maintaining short positions in CHF/USD forwards and 10 year Japanese bonds. It is important to note that ALT is an active fund, meaning that these positions could change rapidly in order to conform to new market data or opinions.

5. MSCI Belgium Index Fund (EWK)

The tiny European country of Belgium is often overshadowed by the much larger France and Germany, but as the seat of the European Union the country commands significant political influence and presents an intriguing option for international developed market exposure. Like most of its neighbors, Belgium has a highly advanced economy and focuses on services and manufacturing for the vast majority of its GNP. Another strong aspect for Belgium is its location as the crossroads between France and Germany. This has allowed the country to develop a robust transportation network as well as impressive shipping facilities which form the cornerstone of the modern Belgian economy.

The fund, which charges 0.52% for an expense ratio, has performed very well over the past 52 weeks, up an impressive  50%. The fund is heavily concentrated in beverage giant In-Bev, which makes up just over 25% of the fund. In addition to consumer staples, which make up about 35% of EWK, financials are another large component, comprising 31% of the total assets. For investors who believe in a consumer and financial sector rebound, EWK may be an interesting choice.

4. S&P North American Technology-Multimedia Networking Index Fund (IGN)

One of the most significantly segmented ETFdb Categories is the technology ETF category. Among the several interesting niche funds is IGN, which seeks to track an index of U.S. traded multimedia networking stocks. The index includes companies that are producers of telecommunication equipment, data networking and wireless equipment. It is primarily a large cap fund holding technology behemoths such as Cisco, Qualcomm, and Research In Motion which combine to make up more than 21% of the total assets. The fund charges an expense ratio of 0.48% and although it is down almost 6% in 2010, the fund is up nearly 50% over the last year.

3. FTSE EPRA/NAREIT Asia Index Fund (IFAS)

Investors burned by the collapse of the U.S. real estate market have been hesitant to add this asset class back to their portfolios. Although real estate prices in the U.S. and, to some extent, Europe continue to stagnate, Asian property markets have surged in recent months, and could continue to appreciate if government stimulus measures remain in place and incomes and populations in developed Asian markets continue to rise. IFAS focuses on developed markets in the region (meaning no exposure to the potentially-overheated mainland China), with more than 97% of the fund going to Hong Kong, Japan, Australia, and Singapore. The fund’s 76 holdings are spread across various types of REITs, with residential real estate making up 57% of the fund. Rounding out the top three are retail REITs (17.6%) and industrial and office REITs (10.2%). The fund is up more than 40% over the past 52 weeks and charges an expense ratio of 0.48%.

2. S&P Global Nuclear Energy Index Fund (NUCL)

The alternative energy sector has received a fair amount of investor attention in recent months, with high hopes for solar and wind energy being called into question by waning government support and inability of global leaders to identify definitive plans for emissions reduction. With mounting budget deficits and more pressing international issues, leaders from various political parties have indicated desire to expand the role played by nuclear power in the global energy industry.

With just over $15 million in assets, NUCL is a relatively small fund that has big potential. Much has been made on the need to develop alternative energy sources in the coming decade, but the majority of the attention has focused on technologies that are yet to be proven as sustainable and cost efficient, such as wind, solar, and hydro power. The climate change issues has been divisive politically, but nuclear power is one point on which both parties seem to agree–even Sarah Palin and Barack Obama share a similar viewpoint.

1. AMT Free Municipal Bond Series

For high tax bracket investors seeking to limit their taxable income, iShares recently introduced a series of AMT free municipal bond ETFs which invest in securities that are exempt from federal taxes and the Alternative Minimum Tax (see this feature covering the launch of the funds). The line of muni bond ETFs from iShares are different from existing funds in that each focuses on debt issues maturing in a certain year, allowing investors to fill in holes in the fixed income portion of their portfolios or fine-tune the overall duration.

The line of AMT-Free muni bond ETFs includes six funds focusing on debt issues maturing between 2012 and 2017 (see a closer look at these funds here). These targeted new products have the potential to be extremely useful in a number of ways, allowing investors and advisors to fill in holes in fixed income portfolios and implement customized strategies. Each fund in the series charges an expense ratio of 0.30%.

For a complete list of iShares ETFs click here. For more ETF ideas, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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“WisdomTree achieved our best fourth quarter in Company history,” said CEO Jonathan Steinberg in a press release. “We are encouraged to see the market responding to our innovations in the emerging markets – namely the industry’s first India, and emerging markets small cap ETFs, as well as the first “1940 Act” family of currency ETFs which collectively were responsible for the majority of the $911 million net inflows in the fourth quarter.”

Dwindling Cash

WisdomTree reported a GAAP net loss of $5.0 million in the fourth quarter and $21.2 million for the full year. But the company’s cash loss was far less. Excluding stock-based compensation, depreciation and amortization, and interest and investment income, the operating loss was only $1.5 million for the quarter and $11.3 million for the year. WisdomTree finished 2009 with $11.5 million of cash on hand, as cash actually increased in the fourth quarter due to the completion of a common equity offering. The net decrease in cash for the year was $1.8 million, including an offset of $5.0 million from the sale of common stock. Excluding this equity raise, the company’s change in cash for the year would have been $6.8 million, more than half the amount on hand at the end of the year.

Signs Of Improvements

WisdomTree’s fourth quarter results showed significant improvement in a number of areas, as revenue, total assets,  average ETF advisory fee both improved over year-ago levels.  WisdomTree has also beefed up its marketing and business development operations, which accounted for about 23% of total operating expenses in the fourth quarter. Business development and marketing accounted for just under 14% of expenses in the fourth quarter of 2008.

WisdomTree’s revenue surged throughout last year, as assets under management grew from both strong equity market performance and continued cash inflows throughout the year. Of the $2.8 billion increase in assets during 2009, cash inflows accounted for $1.8 billion, while market appreciation drove another $1.0 billion increase. For the full year, currency ETF assets increased by a whopping 305%, followed by international ETFs (+96%), sector ETFs (+45%), and U.S. ETFs (+35%).

Declines in domestic and international equity markets in 2010 will present a challenging environment in the first quarter. But WisdomTree continues to haul in the cash. Although the latest data from the National Stock Exchange shows outflows of about $200 million in January, the red ink is primarily related to the unwinding of two WisdomTree “funds of funds,” DEW and DWM, which started in 2009 and ended in January 2010. Excluding this unwinding, WisdomTree actually saw $245 million of cash inflows, behind only Vanguard, Van Eck, and ETF Securities for the month.

WisdomTree shares declined more than 5% on Monday, and are down nearly 35% over the last three weeks.

See a full copy of the WisdomTree press release here (PDF). For more updates on the ever-changing state of the ETF industry, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.

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But there has also been some concern over saturation in the ETF industry, as well more than 100 funds currently have less than $10 million in assets. Hype around the launch of new products doesn’t always translate into sustained investor demand. While many investors and advisors are looking forward to some of the exciting products in the pipeline for 2010, we take a look back, checking in on ten of the most interesting ETFs launched in 2009 (we should note the the numbers don’t reflect a ranking of any sort).

10. Grail American Beacon Large Cap Value ETF (GVT)

When Grail Advisors announced the launch of GVT last year, many investors (including ETF Database) predicted that the fund would be a gamechanger. GVT wasn’t the first actively-managed ETF–PowerShares launched a line of active funds in 2008–but it was the first to allow fund managers complete discretion in selecting holdings, blurring the lines between ETFs and traditional mutual funds.

GVT’s performance has been fine–it has outperformed the iShares Russell 1000 Index Fund (IWB) since its inception–but the fund has struggled to gain traction among investors, finishing 2009 with just $3 million in assets. GVT’s expense ratio (0.79%) has been tough for many investors to swallow, especially without a long track record.

9. PIMCO’s Active Bond ETFs

Despite the market’s tepid reception to actively-managed equity ETFs, expectations for active bond funds from PIMCO were exceptionally high. After launching a handful of traditional passively-indexed Treasury ETFs over the summer, the bond fund giant debuted its Enhanced Short Maturity Strategy Fund (MINT) and Intermediate Municipal Bond Strategy Fund (MUNI) in November.

Backed by PIMCO’s impressive track record and reputation in the bond arena, MINT and MUNI have been big successes, as investors have so far been happy to fork over a few extra basis points–both charge expense ratios of 0.35%–for the firm’s bond expertise. MINT and MUNI closed the year with $108 million and $13 million, respectively, and PIMCO added a third active bond fund (SMMU) in January.

8. State-Specific ETFs

The introduction of the first state-specific ETFs made headlines late last year when Geary Advisors launched the Texas Large Companies Exchange-Traded Fund (TXF) and Oklahoma ETF (OOK), and then slashed the expense ratio of the funds to 0.20%. The launches caught the eye of investors not only because of the unique focus of the products, but also because of the impressive historical performance of the underlying indexes.

OOK and TXF are still very young funds, but so far they’ve hit their mark. Through January, OOK was up more than 5% since its launch, and has outpaced the S&P 500 SPDR (SPY) and energy SPDR (XLE) by about 3% and 10%, respectively. “At first, people outside Oklahoma and Texas have been skeptical, because the concept of a state-specific ETF comes across as gimmicky,” said Keith Geary, president and CEO of Geary Advisors in an interview with ETF Database. “But that all changes when they hear about the rationale behind the products and see the historical performance figures relative to the S&P 500.”

7. ETF Securities Silver & Gold ETFs

ETF Securities is one of the largest European ETF issuers and has an impressive track record of product innovation across the pond, so the firm’s entrance into the U.S. market was of great interest to both investors and competing issuers. Sticking to what it knows best, ETFS launched the ETFS Silver Trust (SIVR) in July and followed with the Physical Swiss Gold Shares (SGOL) later last year.

Despite competing directly with two of the largest exchange-traded commodity products, the silver and gold funds from ETFS have done quite well, finishing 2009 with assets of $130 million and $334 million, respectively. And the issuer has already completed one of the most successful new product launches of 2010, introducing the first physically-backed platinum and palladium ETFs.

6. iPath’s VIX ETFs

When iPath introduced the S&P 500 VIX Short-Term Futures ETN (VXX) and VIX Mid-Term Futures ETN (VXZ) in early 2009, investors got access to an asset class that had never before been easily accessible. VIX futures, which are commonly used as protection against market turmoil, proved to be quite popular, taking in more than $1 billion in cash inflows during the year.

Unfortunately for these investors, VXX was one of the year’s worst-performing ETFs, plummeting as expected market volatility retreated from all-time highs to the long-term average. Most investors understand the nuances of a futures-based strategy, but some have been frustrated that neither ETN has closely tracked the spot level of the VIX: VXX has done far worse while VXZ has fared much better.

5. Sector-Specific Emerging Market ETFs

Last year was undoubtedly the year of the emerging markets, as the world’s developing economies raced ahead of the U.S. and Europe to take the lead in the global recovery effort. Prior to 2009, investors had access to almost every corner of the globe through ETFs, but their ability to gain targeted exposure was minimal, as most funds tracked broad market benchmarks.

Emerging Global Advisors launched three ETFs targeting the metals and mining (EMT), energy (EEO), and financial (EFN) sectors of emerging markets last year, and the funds seem to be gaining traction with investors. EGA’s assets grew by 30% month-over-month in January to more than $60 million despite a down month for emerging stock markets. It looks like we can expect more new products from EGA, as the company has filed for several more sector-specific funds as well as mid cap ETFs targeting specific economies (see our emerging markets ETF center for more some interesting reading on various ETF options).

4. Sector-Specific China ETFs

Following in the path blazed by EGA, Global X Funds introduced a line of ETFs focusing on specific sectors within the Chinese economy last year. “Historically, investing in [China] was an ‘all or nothing’ game,” said Global X CEO Bruno del Ama in an interview with ETF Database. “Investors weren’t able to easily access, for example, the Chinese industrials sector without also getting exposure to financials and energy companies. So we are setting out to expand the tools available to investors by giving them different ways to play China.”

So far, investors have embraced these tools and the opportunity to establish increasingly granular exposure to the world’s fastest-growing economy, as Global X assets climbed to $85 million at the end of 2009. Currently, Global X offers funds focusing on the technology (CHIB), energy (CHIE), financials (CHIX), consumer (CHIQ), industrials (CHII), and materials (CHIM) sectors.

Recent speculation over tightening monetary policy in China has highlighted the country’s increasingly important role in the broader global economy. The market outlook may be uncertain, but look for targeted China ETFs to continue their surge in popularity in 2010.

3. MacroShares Housing Up & Down Funds

After shuttering two versions of paired oil ETFs, MacroShares launched its Major Metro Housing Up (UMM) and Major Metro Housing Down (DMM) to a somewhat skeptical market in 2009. These products offered exposure to residential home prices through an innovative “zero sum” mechanism–the two funds essentially pledged assets to each other over time depending on the value of the underlying benchmark.

Unfortunately, the third round of MacroShares funds didn’t make it to the end of the year, as the company pulled the plug after failing to accumulate sufficient assets. It’s entirely possible that the ETF industry will come to regard MacroShares funds as ahead of their time, and seems a shame that the company didn’t give the funds longer to catch on or implement a more carefully planned marketing effort.

There were definitely some issues with the paired fund structure, and further refinements are needed. But the set-up of the MacroShares products was also a potentially superior way to offer investors exposure to commodity prices and could be extended to allow hedging or speculation on a number of metrics, such as inflation and unemployment. Whether a new issuer steps up to finish what MacroShares began remains to be seen.

2. Hedge Fund ETFs From IndexIQ

When IndexIQ launched the first hedge fund ETF in March of last year, investors were a bit skeptical that the IQ Hedge Multi-Strategy Tracker ETF (QAI) could actually replicate the returns available to investors in hedge funds. But QAI gathered momentum (and assets) throughout the year, recently topping the $80 million mark.

Encouraged by this “proof of concept” IndexIQ has followed on with several more alternative index ETFs since, including the Merger Arbitrage ETF (MNA), Global Resources ETF (GRES), and CPI Inflation Hedged ETF (CPI). See a complete list of hedge fund ETFs here.

1. Small Cap International ETFs

As dozens of international ETFs have popped up in recent years, investors have boasted that exposure to almost any economy in the world is available through ETFs. But this array of opportunities has, for the most part, been an illusion. The majority of international ETFs are dominated by holdings in mega-cap companies that generate significant portions of revenue from overseas markets.

Van Eck’s Brazil Small Cap ETF (BRF), which debuted last year, has been a home run in terms of both performance and popularity with investors. BRF took in more than $500 million on the year, and added more than 100% between inception and year end. Investors have been quick to grasp the difference in risk profiles between small caps and large caps (see this feature for a complete breakdown), and many have found a use for BRF in their portfolio. Van Eck is now planning a Latin America Small Cap ETF that could hit the market in 2010.

Impressive Record

There have certainly been a few airballs along the way, but most of the high profile ETF launches from last years have done reasonably well. In years past, ETF issuers have guilty of putting the cart ahead of the horse, rushing products to launch and hoping that first-to-market status would be sufficient to create demand. In the new environment, issuers have embraced a new strategy by listening to the market to determine demand and molding the product development strategy in response.

Disclosure: No positions at time of writing.

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An academic study titled “Would A Stock By Any Other Ticker Smell As Sweet?” (PDF) examined the performance of “clever ticker” stocks such as Southwest (LUV), Internet America (GEEK), Lion Country Safari (GRRR), and Explosive Fabricators (BOOM). This study uncovered that between 1984 and 2004, “a portfolio of clever-ticker stocks would have beaten the market by a substantial and statistically significant margin, contradicting the efficient market hypothesis.” Theories on the reason for this outperformance have been all over the board. Many have written it off as a coincidence, while others posit that a cool ticker is indicative of a more relaxed management team, and perhaps a more creative and productive corporate culture.

A similar outperformance phenomenon would be extremely unlikely in the world of ETFs–the arbitrage mechanisms in place generally prevent funds from deviating too significantly from their net asset value–but a memorable ticker may be valuable in other ways, such as boosting trading volumes and attracting cash inflows. The majority of ticker symbols are plain vanilla shorthand–some combination of letters found in the fund’s proper name. But some go much further, and a look inside the business of ETF tickers shows that issuers clearly give significant thought to picking trading symbols.

Building A Brand

Some issuers have made a push to establish their brand name through their ticker selections. Most iShares ETFs are filed under “I”, while Vanguard funds can generally be found under “V“. PowerShares product line is full of ETFs starting from P, although the company did manage to have some fun in selecting the ticker for its Dynamic Food & Beverage Portfolio (PBJ). Claymore has a theme going around its suite of China products, which include the Small Cap ETF (HAO), Real Estate Fund (TAO), and All Cap ETF (YAO).

Making Themselves Memorable

Others are simply meant to be descriptive, in four letters or less, of the fund’s assets. AGG and BND are tickers for–surprise, surprise–aggregate bond funds. The tickers for the PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ – as in “twos”) and 3-7 Year U.S. Treasury Index Fund (FIVZ) make it easy to remember the mid-point maturities of the underlying Treasuries, while FUD accurately describes the assets of the E-TRACS UBS Bloomberg CMCI Food ETN. Anyone investing in the iShares Barclays TIPs Bond Fund (TIP) should have no doubt what they’re getting, just as the assets held by the iPath Livestock ETN (COW) should be readily apparent.

The alternative energy industry has fully embraced the ETF name game, boasting the global wind energy ETF (FAN), and a pair of solar energy funds (TAN and KWT). The iShares S&P Global Timber & Forestry ETF (WOOD) doesn’t even claim the title of most creative timber ETF ticker, being narrowly edged out by the Claymore/Clear Global Timber Fund (CUT). Some other classics include the Inflation Hedged ETF (CPI) and Merger Arbitrage ETF (MNA) from Index IQ.

Geared At Traders

Some ticker names are designed to be readily memorable to traders. With nearly 1,000 ETFs now available to U.S. investors, keeping track of which ticker goes with which asset class is no easy feat. Everyone knows EEM as the most popular emerging markets ETF, so it’s likely no coincidence that the Claymore/BNY BRIC ETF (EEB) and the Emerging Markets ETF from Emerging Global Advisors (EEG) are just one letter off. Likewise, ProShares’ 2x and -2x Emerging Markets funds (EET and EEV, respectively) are just one different from the EEM mega-ticker. Almost every investor recognizes QQQQ as the tech-heavy NASDAQ ETF from PowerShares, so Claymore’s pick for its China Technology ETF (CQQQ) should be easy to remember.

Worthwhile Endeavor?

Gauging the effectiveness of a clever ticker in the ETF business is a tricky task, since the performance of a fund depends on its underlying holdings and the popularity depends so significantly on the marketing efforts put into the product line and first-to-market advantage. Still, anecdotal evidence suggests there is some benefit to a smart ticker. When I think agribusiness, MOO comes to mind, not the generally comparable PAGG. When I got into junk bonds last year, I went with JNK over HYG or PHB. It’s interesting to note that JNK has about twice the average daily volume of HYG despite less than a billion in total assets. It seems that I’m not the only one to default to self-deprecating but easily recalled junk bond fund.

Moreover, issuers continue to scour the available inventory to come up with the right ticker for their newest fund. When PIMCO launched the Enhanced Short Maturity Strategy Fund (MINT) and Intermediate Municipal Bond Strategy Fund (MUNI), my initial reaction was surprise that such a prime ticker was still available. Odds are that we’ll see several more classics as the wave of new ETF launches accelerates this year.

It takes a lot more than a catchy nickname to make an ETF go, but there are plenty in the industry who can testify that picking the right ticker can go a long way towards building a fund’s brand.

Disclosure: Long BND.

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