Twenty years ago, there was one exchange-traded fund. Last year, 178 new ETFs were created. This year, 28 have been rolled out. The total number of ETFs listed in the United States now: 1,441, according to Lipper.

"They're coming out fast and furious," said Tom Roseen, head of research services at Lipper.

One of the hottest categories is emerging markets funds, with 17 such ETFs introduced last year and two this year as of mid-April, Roseen said. Last year the funds boasted an 18.2% return; that was even bettered by funds investing in China (18.5) and India (28.8%), according to Lipper. While emerging market funds were down .17% in the first quarter, markets like China are still experiencing a significant growth rate that's well above the U.S. rate, said Roseen.

Another popular category is global flexible portfolio funds, which target investors looking for higher yields and better returns by investing in a wide range of instruments including stocks, bonds, commodities, real estate investment trust and money market instruments found worldwide.

Eight such ETFs were introduced last year and none so far this year, but "we're not going to see the number of new funds we do in the open-end world," Roseen said. Unlike the mutual fund world, the universe of ETFs can support only a limited number of ETFs with the same investment strategies, because if there are too many, they won't have enough liquidity to be viable, he said.

Also popular are equity-leveraged funds, which are designed to beat an index average; specialty fixed income funds, which use leverage or shorting; equity income funds, and high-yield funds, Roseen said. Seven of each were rolled out last year, according to Lipper. The group includes both equity and fixed-income funds that use leverage to give investors more bang for their buck, and funds offering high yields without the leverage.

The list also includes equity income funds, which continue to be hot this year, with three new international equity income funds, one equity income fund and one global income fund launched, according to Lipper. Equity income has been attractive since under the 2003 Bush tax cuts qualified dividend income was taxed at a reduced tax rate of 15% rather than the marginal tax rate. Under Obama, that rate has been raised to 20% for highest earners, which still makes investments targeting yield and distribution from equity funds hot, Roseen said.

Natural resources funds take top honors thus far in 2013; three such ETFs have been rolled out this year through mid April, Roseen said. These funds invest in master limited partnerships because of their return of capital, Roseen said.

Unlike last year, this year domestic equity funds have made the list of top categories for new ETFs, according to Lipper. Two large-cap growth funds and two small-cap core funds have been rolled out, Roseen said. Investors have been running from domestic equity funds for some time, and have invested their assets in international and fixed income funds instead. This development may represent a rebalancing of investors' portfolios, he said.

Through April 24, domestic equity ETFs have attracted $10.6 billion in new flows, compared to $15.4 billion in non-domestic equity funds and $14.5 billion in taxable bond ETFs, according to Lipper. Fixed income is a relatively new market in the ETF space, which is dominated by equity ETFs.

BlackRock launched 47 ETFs last year, the most new funds in 2012, according to Lipper. Topping the list for 2013 through mid-April is Global X Funds with four launches, followed by Northern Trust Investments and State Street Bank and Trust Co., with three each, according to Lipper.

A shorter leash

At the same time that ETFs are being launched at a fast clip, fund companies are putting the investment vehicles on a shorter leash. Last year saw the largest number of liquidations in the industry: 111, according to Roseen. Through mid-April there have been 30 ETF liquidations this year, he said. "With all the cuts and downsizing in the financial industry, financial firms give an ETF less time to move," he said.

Top categories for liquidations last year were dedicated short bias funds with 16 closings. Those funds employ portfolio strategies consistently creating a net short exposure to the market. These don't fare well, when markets are rising. Last year, S&P 500 Index funds were up 15.3%, according to Lipper.

Next on the list of categories that saw heavy liquidations last year were specialty/miscellaneous funds with 10 closings, followed by science and technology funds (6), multi-cap core funds (5), multi-cap growth (4) small-cap growth (4), small-cap core (4), currency (4) and telecommunications funds (4), according to Lipper.

In 2013, dedicated short bias funds continued to have the largest number of liquidations (3) so far year to date, followed by global natural resources funds, financial services funds, large-cap core funds, multi-cap core funds, equity leverage funds, and small-cap core funds, which all have seen two closures so far this year, according to Lipper.

The cutting edge

Global X Funds, based in New York, topped the list of ETF providers launching new funds in 2013. The ETF provider introduced funds in keeping with the trends noted by Roseen, including a natural resources ETF, a "superdividend" fund, and two frontier market funds, investing in Nigeria and Mongolia.

The natural resources fund invests in the "small-cap segment" of MLPs, and allocates half of its assets in infrastructure and the other half in exploration and production, said

"What's happening with energy in the U.S. is just incredible," said Bruno del Ama, CEO of Global X. "The U.S. will become energy independent. It's no longer a pipe dream."

That's because techniques such as fracking and horizontal drilling will enable the U.S. to become a net exporter of natural gas, while at the same the U.S. is expected to become the largest oil producer in the world by 2017 according to estimates, del Ama said.

For their part, Nigeria and Mongolia both represent frontier markets that have the potential of becoming emerging markets, del Ama said. Among other things, Nigeria is the largest oil producer in Africa, while Mongolia "is one of the richest parts of the world from a resource perspective, with tremendous mining deposits," del Ama said.

"Those are high-risk type exposures," del Ama said.

But if they do move from frontier to emerging, a one-time repricing will happen with regards to the valuations of those countries, he said. "So if you are successful in identifying what are the frontier markets that will go from real frontier markets to emerging markets, you get a massive increase in valuation and returns as an investor."

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