ETF investing done right

A lot of ETFs that claim to follow indexes don't track established benchmarks such as the S&P 500. For example, the prospectus for the Market Vectors Solar Energy ETF says it tracks the "Ardour Solar Energy Index" - not an asset class at all, but a "benchmark" invented by fund company Van Eck Global and Ardour Global Index.

Many of these offerings follow stock-picking approaches based on fundamentals, such as low price/earnings ratios or strong balance sheets. Quantitative strategies like this may make sense; many of these ETFs held up well in the financial meltdown. But they won't accurately mirror a broad asset class, so they pose a greater risk of underperforming the market.

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