It is a mark of the ETF industry's coming of age that financial advisors and ETF executives could sit down for two days in Boca Raton, Fla., and have a frank and candid discussion about where the business is headed.

Even in the middle of the worst bear market in decades, the ETF business has many accomplishments to celebrate. In recent months, asset flows into these funds have surpassed those into mutual funds for the first time. Of course, overall market volatility touched everything in 2008, and ETFs were not totally left unscathed. Sixty of them folded.

Moreover, as speaker after speaker noted, the ETF business still faces hurdles. Before these newfangled instruments become totally accepted, both advisors and retail investors must overcome a steep learning curve to understand their nuances. Few people read the fine print, as mutual fund critics note, so ETF marketers face an uphill battle with their education efforts. But, as Morningstar Managing Director Don Phillips remarked at the conference, it's not for lack of trying.

"We try as an industry to educate people, and I think we've done a fair job," declared Jim Ross, president and senior managing director of State Street Global Advisors (SSGA). "We need to do it better."

Nowhere, participants agreed, was the need for education greater than in the market for leveraged and inverse ETFs, which need to be closely monitored if used, say experts. These vehicles can be invaluable risk management tools, but they are not at all appropriate for buy-and-hold investors. Most, in fact, should be bought and sold the same day. Indeed, if they were held indefinitely, they could end up going to zero in value. One speaker cited the example of an inverse ETF designed to appreciate when the Chinese stock market fell; when the Chinese market actually dipped a whopping 50%, this ETF, when held for several months, fell 30%.

The crisis in the credit markets left century-old financial products like commercial paper incapacitated, so it's not surprising that newly debuted instruments like exchange-traded notes (ETNs) have been strained as well. Ben Cukier, partner at FTV Ventures, noted that during the ferocious market turbulence in the fall of 2008, "some ETNs were the only fixed-income vehicles that could be priced at all." Some investors complained that the pricing was problematic, but at least they could get a degree of liquidity with ETNs that they couldn't get elsewhere.

With new ETFs continuing to launch monthly and others starting to fold, the topic of new product launches and their survival was one that intrigued advisors and ETF marketers alike. PowerShares CEO Bruce Bond, who has built a firm with $26.75 billion in assets in only five years, said his firm tries to take a long-term view. "We introduced a clean energy ETF and it did little for a while before Katrina," Bond explained. "Over time, it became a popular ETF."

SSGA's Ross added that it didn't make a lot of sense for any fund family such as his to simply try and capitalize on transient investment fads. "When we introduce a fund, we expect that it will be in our family for a long time," Ross said. "We want to be looked at as a suite of products [in their totality], not at one point in time."

Speaking at a luncheon, economist Ed Yardeni deviated from ETF shoptalk and went to the big picture, telling attendees that we've seen the "bursting" of the greatest credit bubble of all time, which has been "offset by the greatest bailout of all time." The question is which will win: deflation or reflation? "As Greenspan taught us, 'The worst way to offset a bubble is to create another bubble,'" Yardeni said.

Most investors of this generation aren't used to an environment like the present one, where you can't profit from bubbles, Yardeni added. But the Fed is working hard once again to create the next one anyway. And signs have surfaced just in the last few months that it may be working. The first round of TARP injections into banks "was a total failure," Yardeni said, and he was highly critical of former Treasury Secretary Hank Paulson. Expressing amazement that Paulson had learned so little in his Wall Street career and lambasting mark-to-market regulations, the economist observed, "If you have no market, how can you mark to market?" He also declared that, "If TARP isn't corruption, I don't know what is."

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