How do you go about investing in these areas? You could find a unit-linked fund specialising in your chosen field. But then you have to pay annual charges of up to 2% as well as possible upfront and exit charges.

Investing directly in shares is another option. You pay a stockbroker's fee, which varies from around $7 with internet-based outfits such as E*trade. com to hundreds of euro for a personal account with a blue-chip broker. You are spared the annual management charge and the upfront cost can be minimal.

But do you really want the hassle and risk of buying lots of different shares in far-off markets and monitoring their performance? Most people don't have enough time or knowledge to manage the wide-ranging portfolio required to spread their risk in volatile share markets.

And if, say, you have a hunch that a particular sector, such as biotechnology, will do well, how can you back it without taking a huge risk, as no one really knows which biotech companies are going to discover the cure for cancer and which are going to crash and burn.

A new phenomenon provides an alternative, combining the best of both unit funds and shares, and it is taking the investment world by storm.

Exchange traded funds are pooled investments . . . a collection of many shares . . . that trade on the stock market.

You can buy them just like you buy shares, but instead of just one company, you get a stake in dozens, or even hundreds, achieving the comfort and security associated with traditional unit-linked funds.

But because an ETF is effectively a share itself, management charges are very low by investment industry standards . . . usually 0.5% a year, though you can get European ETFs as low as 0.1%.

"They are relatively new to Ireland but old hat to investors in the US and on the continent, " says John Geraghty, of LAbrokers.

This year is seeing a phenomenal upsurge in ETFs that enable investors to take a view on everything from nanotechnology to the Belgian stock market. Earlier this year, Morgan Stanley estimated there were some 847 ETFs around the globe, but it forecast another 543 would be launched before the year end. Global ETF assets under management are predicted to increase more than threefold to 1,486bn by 2011.

"I'm excited about them because they should enable an investor to track an index at a far lower expense ratio compared to traditional managed or index tracking funds, " says Geraghty. "They can be low cost if you buy via an online stockbroker such as Goodbody, Davy or Sharewatch. They can be bought through most stockbrokers but be careful of the charging structure especially if its for a relatively small investment.

"I like them because they offer full transparency of price and offer ease of dealing. The fact that they offer a lower cost structure and that they offer intra-day liquidity should give traditional unitlinked funds a run for their money."

Michael Kiernan of myadviser. ie agrees that ETFs can be good for index tracking as they allow direct access to the Stock Exchange at the same tax rate that applies to unit funds (23%).

"The Irish Stock Exchange's ETF has been used by some of my clients instead of some of the index trackers I can access. The ETF can be better value for longer investment terms."

On the downside, he believes active management can deliver better results and ETFs require extra administration for investors (they need to set up and run stockbroker accounts).

Investors in Dublin's ISEQ20 ETF saw the value of their 50m investments rise by 28% last year, in line with a strong performance by most shares on the Irish market.

And its success in attracting investment interest has led the Irish Stock Exchange (ISE) to plan the launch of a new range of ETFs that will enable Irish investors to take an investment stance in areas such as China, Europe and the FTSE Index. Also possible are new funds targeting commodities like gold and oil (both such ETFs were tipped by Eddie Hobbs in his magazine You and Your Money recently. ) ETFs are taking over as the vehicle of choice for index funds in the US. In the 12 months to the end of April, US equity mutual funds suffered significant net outflows, while US equity ETFs increased their assets by $71.8bn, or 30%, over a period when the S&P 500 rose by only 13.6%.

However, not everyone agrees about them. The most notable difference of opinion is between two US investment gurus . . . Jack Bogle and Burton Malkiel . . . who were described recently by the Financial Times as "the archprophets of indexation".

Malkiel is an economics professor at Princeton and author of the million-seller, A Random Walk Down Wall Street. Bogle wrote an undergraduate thesis on mutual funds for the same university and founded Vanguard, the fund management company that still dominates the market for index-linked mutual funds, and whose board once featured Malkiel.

However, in his latest book, The Little Book of Common Sense Investing, Bogle writes:

"The ETF is a traitor to the cause of classic investing.

Surely using index funds as trading vehicles can only be described as short-term speculation."

As both he and Malkiel have shown, short-term trading is a mug's game, so he questions the wisdom of producing an index fund that can trade minute by minute.

He claims that, "after all the selection challenges, the timing risks, the extra costs and the added taxes, typical ETF investors have absolutely no idea what relationship their investment return will have to the return earned by the stock market".

The "stampede" to launch ETFs has seen particular interest in concentrated sector funds whose costs, he says, "can run three to six times the level of the lowestcost all-market index funds".

He says ETFs should be labelled 'Handle with Care', or 'Caution: PerformanceChasing at Work'.

Malkiel takes the opposite view. As a company director in the biotechnology industry, he describes this investment arena as "a crapshoot". However, he suggests buying a concentrated sectoral ETF.

"Many of them will fail and some of them will discover the new great drug. It strikes me as an excellent way to index and a great use of the exchange-traded fund to do it."

Malkiel and Bogle appear to have remained friends . . .so far. However, Bogle has started "sending me everything negative that's ever written about ETFs", Malkiel tells the FT. His next book will advocate investing in China through ETFs. "Jack doesn't know about it yet, but I'm sure he won't like it, " Malkiel says.

btyson@tribune. ie