That not all ETFs are created with equally low costs is a fact that may be about to sink in with financial reporters. The WSJ's Fund Track picks up on this fact in an article by Eleanor Laise. She reports that more than one quarter of ETFs sport "high" trading costs. The article appears to draw the line for high at a trading spread of 50 bps or more.

The article also points out that the average expense ratio of ETFs have drifted up to 56 bps from just 40 bps in 2005, according to research by Citi Investment Research.

One reason for the high spreads and rising expense ratios is that many of the ETFs on the market have relatively few assets.

Matt Hougan, director of ETF analysis for IndexUniverse.com even gives these small products a cute name: "zombie ETFs".

The ranks of the zombies will likely only grow as more than 500 ETFs are currently in the registration pipeline even as the seed funds for new product has been mostly turned off.

"Can we get as much seed capital as we could get two years ago? Absolutely not," Jim Ross, senior managing director at State Street's State Street Global Advisors, tells Laise.

That means that the size of new products has shrunk to just $5 million to $10 million in seed capital from $20 million in more flush times. 

Edited by: Sean Hanna, Editor in Chief


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