Jonathan Shazar at chronicles the rise of sector ETFs. He notes that there are well over a dozen more sector funds in registration. Some analysts believe the overlap between funds will only create confusion on the part of investors.

Despite this trepidation there seems to be an insatiable demand for these funds. The interesting point is that the majority of demand seems to be coming from hedge funds. One estimate puts hedge fund demand at 70% of net ETF inflows.

“Our clients have been telling us there’s a need out there for more granularity in the sector market,” says Dave Sandrew, head of ETF sales for SSgA. “We’ve seen a lot of liquidity come into these products… There’s a real appetite out there.”

In short there is no end in sight for sector ETF launches. A product that was initially pitched as a simple portfolio solution has rapidly evolved into something quite different. Only time will tell if there is sufficient liquidity to back all these fund launches.

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