ETF's Everywhere {Part II}

Today we continue our coverage on the Barron's cover story regarding ETFs.  {Excerpt with my highlights.}

Active traders are heavily involved with exchange-traded funds. Many day traders now play ETFs, including volatile ones that move by double and triple the daily change in their underlying indexes.....

The ETF business is highly concentrated, with the 10 largest funds—out of a universe of about 1,000—accounting for 40% of all assets and three just issuers, BlackRock's (BLK) iShares, State Street Global Advisors and Vanguard, controlling 82% of industry assets. Trading in ETFs averages $62 billion a day and accounts for about 25% of the volume on U.S. exchanges.

ETFS ARE A GREAT democratizing force. With a click of a mouse, individuals can get access to stocks in virtually every corner of the world and to assets like commodities that can be cumbersome to buy and largely have been limited to institutions.

Try purchasing 100,000 ounces of silver and then finding a safe place to store it. But it's relatively easy to purchase 100,000 shares of the iShares Silver Trust (SLV)....The largest commodity ETF, the SPDR Gold Trust (GLD), now holds $60 billion of the metal in London vaults. Its popularity has played a role in gold's 25% rise this year, to $1,365 an ounce.

A Booming Sector

More than 1,000 exchange-traded funds exist, covering everything from emerging-market stocks to energy to U.S. blue chips and Treasury bonds. Through October, ETFs pulled in a net $89 billion in assets this year.....Critics say that an influx of ETF money may be contributing to a bubble in some commodities like silver, which has jumped 20%, to $26 an ounce, since Sept. 30.

Investors have been focusing on commodities and other hard assets to play growing demand in the developing world and amid fear that the Federal Reserve's controversial plan to print money via the purchase of $600 billion of U.S. Treasury securities over the coming months will debase the dollar and spur inflation....

....Many real users of commodities contend that investment demand has distorted markets. Gold jewelry demand, for instance, has fallen as the metal's price has shot up.....That said, the presence of an ETF on natural gas, U.S. Natural Gas (UNG), hasn't helped gas prices, which are down 35% this year to $3.70 per million BTUs.

Link:  ETF's Everywhere

*Long GLD in client accounts.  Many of the ETFs we hold in our investment strategies are issued by Vanguard, State Street and Ishares.