The only type of fund growing at a faster clip than ETFs is ... ETFs of ETFs.
Professional money managers are packaging portfolios of ETFs to make active bets on the market — macro bets, country bets and tactical shifts into and out of sectors. At the end of 2013, there were 648 strategies that fit this definition, with $96 billion in assets, according to Morningstar data. These ETF funds of funds — at least 50 percent of the strategy needs to be invested in ETFs to meet Morningstar's definition — increased by 40 percent last year. By comparison, total U.S. ETF assets increased 26 percent last year.
Ben Johnson, director of passive funds research at Morningstar, doesn't necessarily recommend that the average Joe investor run out and open up an ETF strategist fund. "Not many of these strategists' habits can be easily replicated by typical investors, especially the larger and more tactical strategies," he said.
It's true that professional ETF strategists run complicated quantitative models the individual investor would be hard-pressed to match. However, there are some straightforward concepts the do-it-yourself investor can use to gain an edge using ETFs, investing ideas that dovetail with the current boom in packaged ETF solutions.