Riding the wave of investor appetite for commodities, currencies and precious metals, the makers of exchange-traded funds (ETFs) continue to find new ways to slice and dice the market.

The instruments continue to proliferate and pull in money. In the last decade, assets under management at ETFs have soared 59% to $627.4 billion, according to research firm Morningstar Inc. Asset growth has slowed a bit recently, to just under 40% over the last three years, as the industry has gained a more substantial base.

But the massive asset gains have begun to slow slightly. Meanwhile, the number of new funds has grown. The last decade saw the number of new ETFs rise by 39.1%; over the past three years, that ramped up by 52.5%. Much of those gains were in 2006 and 2007, with that pace finally slackening this year as the markets became more unpredictable. (There were 787 ETFs based in the United States as of May 31, according to Morningstar.)

Issuers of the products "are less willing to do new issues," says Kevin Farragher, managing director of Rydex's ETF business line. He notes that fewer offerings have launched so far in 2008 than over the same period last year partly due to market saturation, as the most obvious market indices already have several products tracking them, and even the most mundane have at least one.

But Farragher also blames the fact that "there's less seed capital to be had." Traditionally, an issuer launched an ETF by getting money to start the fund from Wall Street firms known as authorized participants. The ETF issuer would give the firms shares in the ETF. And the institutions would act like a syndicate in an equity offering, selling the ETF shares from their inventories into the market.

Partly in reaction to their own financial circumstances, they are less willing to do new issues. "They want to do things that will be successful," Farragher says. "There's pressure on the issuers to be more judicious in choosing a benchmark around which to build."

Nonetheless, the industry continues to crank out new products. As of May 31, there have been 131 new ETFs this year, or 16.6% of the 787 U.S.-based funds.

He said he expects the pace to slacken over the summer and for new issuance to slow in the coming year. Regarding the new issues this year, he says, "You're not seeing the acceleration in new issues you saw the two or three preceding years. It's holding flat. That's because people are delivering on their 2008 plans as opposed to all of these new opportunities being discovered and acted upon quickly."

The development has come from issuers creating even more specific instruments, from broad indices to specific market caps. Jeff Ptak, ETF analyst at Morningstar, cites this as the continuation of a trend toward more specific exposures to sectors and industries.

For example, there are some products in registration that give investors exposure to real estate in general and the housing market in particular.

Other ETFs track individual countries and geographic regions. Consider the recently launched ETF from Invesco PowerShares, called the MENA Frontier Countries Portfolio (ticker symbol: PMNA).

It's based on the Nasdaq OMX Middle East North Africa Index, which is designed to measure the performance of the largest companies in the Middle Eastern and North African countries of Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and the United Arab Emirates.

The index has 67 companies with market capitalizations between $243 million and $10.4 billion.

Bulls and Bears

The areas that have seen the largest increase in interest are leveraged and inverse ETFs. These funds seek to give the investor bearish and bullish exposure to an index.

According to Morningstar, there are 77 leveraged and inverse ETFs, all based in the United States, holding $17.5 billion as of May 31. That outpaces the growth of the ETF industry overall, something Ptak describes as "no mean feat."

He cites ProShares as one of the more successful managers when it comes to gathering new assets. One of the company's popular strategies—on the positive side—has been the Ultra QQQ (which tracks the Nasdaq). But given the poorly performing markets, there have been many more bear hits lately: UltraShort S&P 500, UltraShort Oil and Gas, UltraShort Financials, and UltraShort Russell2000. In these cases, the ETF holder is betting on getting twice the inverse of the daily index return. So if the S&P 500 index loses 2%, the fund aims to deliver 4% on the day.