With a total of 612 exchange traded funds (ETFs) sponsored by 19 managers, how do you choose among them?

Because ETFs track an index passively, past performance is not useful. Michael Maiello for Forbes reports that their "Best Buys" are the ETFs that have the lowest costs in each of the seven categories. Cost is defined as the sum of annual expenses and one-fifth the average bid/ask spread observed on a recent trading day.

An ETF has a rigid portfolio mix and it trades with a bid/ask spread on a stock exchange, so when you buy or sell them, a brokerage commission is run-up. Shares are created and redeemed in response to demand.

Lately, ETF managers have hired companies such as S&P and Zacks to come up with custom indexes for them. Some of these have been successful and haven’t slipped, such as the Intellidexes for PowerShares.

Other ETF landmarks taking place now: pending Security and Exchange Commission (SEC) approval, an actively managed ETF could be coming soon. ETFs that invest in commodities are proliferating, too. Oil and gold are in high demand, thanks to their ease. Yesterday, Market Vectors Coal (KOL) launched, giving investors access to yet another area.

Tags: Coal, Energy, KOL, Metals, Oil

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