We've been impressed with the growth of the exchange-traded funds market and have noted that there was a lot of entrepreneurialism at work in the industry. But we're starting to hear a lot more criticism as well. Nearly 450 ETFs are now available; 75 were launched this year. Business Week online says: "In their rush to market, providers are creating flawed funds." For one thing, Morgan Stanley has found more than trivial tracking errors in some funds. Consider the iShares DJUS Telecommunications ETF, whose return differed from its index last year by nearly four percentage points. Sometimes there are understandable reasons for this. Overseas indexes can be tough. But the bottom line is people expect index performance. Now in some cases, the customer has benefited from the divergence. The big index ETFs tend to track very closely, however.

For more:
- here's the Business Week online article