ETF Ideas Circa 2006 - Alcoa (NYSE:AA), USCF ETF Trust USCF Aluminum Strategy Fund (ARCA:ALUM)

Yesterday I was looking for a document on my computer and saw a file in a folder called ETF Ideas that was dated from December 2006. It appears as though I solicited input from readers about "what you'd like to see" in advance of attending a conference. I'm not sure if the ideas listed were all reader ideas or whether I created the list, there is a grouping at the bottom of the list called miscellaneous so perhaps I had some ideas and readers contributed things I did not think of.

Either way here is the list as I had it in the file;

Commodities
Industrial Metals ETF
Energy ETF (access to brent)
Commodities ETF based on Dow Jones AIG Commodities
Global Timber
Uranium
Platinum

Fixed Income
Master Limited Partnerships
Preferred Securities
Floating Rate Notes
INTL bond
Muni bond ETF
ETFs of bond CEFs
High Yield Bonds
Emerging Market Bonds
Yield curve plays

Miscellaneous Ideas
Yen ETF
VIX
International REITs
U.S. Residential Housing (long and short)
A couple of intelligent groupings of the next BRICs IE N-11
Themes: Outsourcing ETF, Vice, Tortoise vs. Hare, Art and collectibles, weapon manufacturers
More equal weight
Narrow sector and sub sectors
More single country India 11 Russia Eastern Europe Mid East Africa Nordics Ireland
A broader global fund
Dividend ETFs with better sector diversification
Hedge Fund indices
Buy write ETFs
ETF of ETFs
International Small Cap Value ETF (truly small cap, truly value)
International MicroCap ETF

Almost all of these have come into existence and I would say in certain segments the number of funds now available exceeds the general expectations from 2006. There are maybe a dozen VIX related products and MLP products which may not be good things but they do exist.

It is also possible that the number of country funds and thematic funds also exceeds the general expectation from back then as well.

Narrow funds get picked on by many different people in all parts of the industry as being unnecessary, speculative or otherwise unsuitable for everyone. I've said countless times that the logic that narrow funds should not exist is simply idiotic. First of all some participants do speculate and plenty more use individual stocks to build a portfolio (a fact that often is forgotten). Would it be wildly reckless for anyone to own Alcoa (AA)? If not then it would not be wildly reckless for anyone to own the Global X Aluminum ETF (ALUM). I want no part of this niche which is why I chose the example. Someone could assess the fundamental story of the aluminum space decide they want to buy and then weigh the merits of various choices including one of the largest names in the space and a fund that focuses on the space.

Some funds of course end up being of little to no use to the market for whatever reason and those funds end up closing. I imagine that the China Carpet ETF might have a tough time catching on and the market will sort that out as new funds come. I found a company called Tai Ping Carpets which trades very thinly in Hong Kong but does have a five letter US designator; TACPF.

Clearly no investor will make use of too many funds; if there are 1000 funds it is not like someone can realistically make use of 100 of them or even 50. I'd be surprised if too many individuals or RIAs would have use for 20 ETFs. We use in the neighborhood of ten for the equity portion of client portfolios (including GLD) and two or three for fixed income. Those numbers for us mean very little as I would use more or fewer depending on where the portfolio goes.

If you go narrower than SPY/EFA/IWM then you should make informed decisions for each segment based on the available choices and consistent with your ability to analyze the choices, spend time monitoring the holding and your comfort level with things like trading volume.

That leaves us to ponder what else will come in the future now that we have a fishery ETF. No surprise, I would like to see a global cement ETF, some sort of toll road/air port/seaport fund (the yield could be very high), a Nordic bank ETF, a Chilean debt ETF and a few others. What ideas do you have?

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