Investing: In New Funds, Old Flaws

... you shouldn't confuse ETFs with a newer mutation called "exchange-traded notes," or ETNs. These instruments, 284 at last count, have gathered $133 billion in assets, nearly all in the past three years; by comparison, 1,154 ETFs hold $1.1 trillion in total assets. The ETNs often track currencies, commodities and other assets rarely held by traditional ETFs—and can surprise unwary investors with high costs, quirky taxation and prices that may wander far from their asset value.

Dave Nadig, director of research at IndexUniverse, a firm that follows the industry, says many of these "outlier products are antithetical to the original core mission of ETFs."

My advice: Don't even try that unless you have a couple of hours, a magnifying glass, a financial calculator and a few pints of strong coffee. If a financial adviser tries to sell you an ETN, say simply: "Tell me what page 43 of the prospectus means."

There is a buyer for every Frankenfund—but it doesn't have to be you.

For why, see In New Funds, Old Flaws by Jason Zweig, April 13, 2012 at WSJ.com.