Exchange-traded funds (ETFs) are a great product. They provide exposure to the equity market for a reasonable price. If you buy the iShares XICs, you can be assured of getting the return of the S&P/TSX 60 for only 0.17%. That's a good deal.

But things are changing dramatically in the ETF world. New offerings are coming at us fast and furiously and it's starting to look very much like a movie I saw in the 80's and 90's. I think it was called "The Mutual Fund Diaries".

Tell me if this doesn't sound like a remake:

• There is now a regular stream of new ETFs coming to market from Barclays and other firms like Claymore Investments and Horizons BetaPro Funds.
• A large number of these funds are targeting areas of the market that have done really well over the last few years.
• The offerings are becoming increasingly specialized. You can buy ETFs for any industry you want. There are a few targeting high dividend stocks. In the U.S., Claymore has an ETF based on neglected stocks and another based on favorable trends in insider buying. These are sure to come to Canada.
• Fees are creeping up. MERs of 60-70 basis points are now common and there are lots above that, even going as high as 150 basis points.
• Claymore now offers a set of ETFs that pay trailer fees to financial advisors.
• And the market leader, Barclays, has seriously ramped up its advertising.

If this remake continues to be faithful to the original plot line, there are some consequences to be wary of.

ETFs may move away from what they're really good at - providing broad market exposure at rock bottom prices. As the funds get fancier, they will lose some of their simplicity, transparency and price advantage.

The more specialized ETFs become, the more tempting it will be for investors to become sector rotators and/or market timers (indeed, the current ad campaign from Barclays encourages this). It's a slippery slope towards performance chasing when investors can easily load up on a particular type of stock - energy, technology, healthcare, dividend-paying, etc. As for market timing, the new product from BetaPro takes it to another level by allowing the investor to leverage up their bet on the direction of the market.

The bear market of 2000-2003 was tough on everyone's net worth, but the worst damage was inflicted by the proliferation of specialty technology funds in the late 1990's. Where were all those funds in the early 90's? Where were all the oil and gas, gold or dividend-paying ETFs 5 years ago?

With the product proliferation that's coming at us, we will most certainly have some really neat tools at our disposal. But there's no doubt the ETF market is going to be more complex and have higher fees in the years to come. It will be interesting to watch this movie unfold.