We read in Larry MacDonald’s blog (Avalanche of New Exchange Traded Funds) on the Canadian Business site that there have been 18 new exchange-traded funds (ETFs) created this year in Canada. Horizons BetaPro has been the most active with a whole series of Bear and Bull ‘Plus’ funds. These funds let you pick the direction you think the market (S&P/TSX 60) or a sector (gold, energy, financials) is going and receive an amped up return (or loss). All of these ‘Plus’ funds offer twice the upside if you’re right, and vice versa.

As you’ll see from Larry’s list below (organized chronologically), Claymore and Barclays (iShares) have also been introducing products.

Horizons BetaPro S&P/TSX Global Gold Bear Plus
Horizons BetaPro S&P/TSX Global Gold Bull Plus
Claymore Global Balanced Growth
Claymore Global Balanced Income
Horizons BetaPro S&P/TSX Capped Energy Bear Plus
Horizons BetaPro S&P/TSX Capped Energy Bull Plus
Claymore S&P/TSX Global Mining
Horizons BetaPro S&P/TSX Capped Financials Bull Plus
Horizons BetaPro S&P/TSX Capped Financials Bear Plus
Claymore S&P Global Water
iShares CDN S&P/TSX SmallCap Index Fund
iShares CDN Jantzi Social Index Fund
iShares CDN Russell 2000® Index Can Dollar Hedged Index Fund
Claymore S&P/TSX CDN Preferred Share
Claymore International Fundamental Index
Claymore Japan Fundamental Index ETF C$ Hedged
Horizons BetaPro S&P/TSX 60 Bear Plus
Horizons BetaPro S&P/TSX 60 Bull Plus

The flow of new ETFs hasn’t matched the new offerings for structured products and principal-protected notes, but it’s been an active year nonetheless.

If you’re a buyer of these funds, you may find the following comments useful:

• Make sure the fee is reasonable. As the ETFs get fancier, the fees have been moving up.
• Make sure you’re not chasing yesterday’s news. The ETF world has definitely created some products in the last year that are meant to capture the current trend or fad. As per my recent posting (A Recipe for Poor Performance), having a portfolio full of securities that have done well in the recent past is not the way to generate attractive returns in the future.
• If you’re buying a sector fund, as opposed to a broad market ETF, you should have some knowledge that gives you an edge there. Otherwise, diversified funds (indexed or actively-managed) are a better way to go.
• ETFs can be a great tool for asset allocation, but forget about market timing. Too often they are sold as vehicles that will allow you to act on your investment brilliance and make a pot full of money. For example, I see the Horizon BetaPro Bull and Bear ads every morning when I turn on BNN. They imply that some of us know which way the market is going and should use that knowledge to lever up our bet. The reality is we don’t know. Nor does anyone else. Not here or anywhere. Picking the direction of the market over the short-term is a roll of the dice.