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Big Money ’07: What’s Next for ETFs?

Two hundred exchange-traded funds registered with the U.S. Securities and Exchange Commission in 2006. Nakedshorts.com’s Greg Newton says there are 300 more expected to start trading in 2007. He was on “Squawk on the Street” this morning. Watch for fierce competition in the New Year, he says.

According to Newton, the competition will give rise to the number of choices investors have among very similar products. Case in point: Rydex holds a large number of registrations for leveraged and inverse funds in order to compete with rival ProShares.

A leveraged fund, Newton says, is “when you buy a dollar, you essentially get $2 worth of action.” Inverse funds allow investors to make a short play in a longer-term investment vehicle – the main advantage being that inverse funds can be held in retirement accounts.

And don’t expect the almost Byzantine investments some ETFs track to go anywhere next year. Newton says investors are waiting to give these niche-specific indices time to mature – and see if they’ll survive.

It takes between $50 million and $100 million for an ETF manager to get his fund safely operable. “As you see things get up towards that level, you’ll see them hanging around a little bit more,” Newton says.

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  • Carl Quintanilla is an Emmy-winning reporter and co-anchor of CNBC's "Squawk on the Street," broadcast live from the NYSE.

  • Simon Hobbs co-anchors the 10 a.m. hour of CNBC's "Squawk on the Street" live from the New York Stock Exchange.

  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

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  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.