Despite the market meltdown, exchange traded fund (ETF) providers have continued to introduce scores of new funds.  What does this mean for investors?

In 2008, more than 150 new ETFs have  been launched, with approximately two-thirds of them attracting $10 million in assets or less, reports a study by Morningstar.  Along with this surge in newly created ETFs this year comes obsolescence for other funds. In fact, fund provider HealthShares has shut down 15 of its ETFs and plans on liquidating the four that it has left.  In total, 45 ETFs have liquidated, including some funds from Claymore Securities and FocusShares, reports Eleanor Laise of the Wall Street Journal.

What makes this troublesome for investors is when an ETF liquidates, the investor has to find another place to stash his cash and a tax liability may be generated, if held in a taxable account.  This doesn’t mean that ETFs aren’t a great investment tool, investors just need to be mindful of the fund provider and the fund’s goals.

Although many analysts still believe that the trend of liquidity in ETFs will continue, 2008 has been characterized by an enormous inflow of assets into ETFs. Right now, in the midst of our financial crisis, investors seem to be sticking with what they know and gravitating toward security more than anything else. Once a turnaround begins, perhaps they’ll regain that adventurous spirit and venture off into the more narrowly-focused areas of the market.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.