Last week was extremely busy for exchange-traded fund (ETF) launches: 17 new products came to market, though 15 were released by a single issuer. There isn’t always strength in numbers; those 15 offerings had a rough start.

In late 2007 FocusShares launched four ETFs that lasted only 11 months before being shuttered. These narrowly focused funds employed bizarre investment strategies, tracking an odd mix of Wal-Mart’s merchandise suppliers, homeland security outfits and sin stocks. With limited resources and a paucity of new ideas, FocusShares failed to launch any new funds since that time. But FocusShares never officially closed shop. The ETF issuer believed that its exemptive relief filing with the Securities and Exchange Commission–necessary for any ETF launch–was a valuable asset unto itself. Their judgment was sound; last year discount brokerage Scottrade acquired FocusShares with an eye toward launching its own proprietary line of ETFs.

FocusShares teamed up with Morningstar to launch 15 broad-index funds on March 30. The lineup includes four very broad market funds:

• Focus Morningstar US Market Index ETF (NYSE: FMU)
• Focus Morningstar Large Cap Index ETF (NYSE: FLG)
• Focus Morningstar Mid Cap Index ETF (NYSE: FMM)
• Focus Morningstar Small Cap Index ETF (NYSE: FOS)

Using rules-based indexes, all four of these offerings are passively managed index funds tracking modified capitalization weighted, float-adjusted indexes. This means that although the funds employ a capitalization-weighted methodology, a company’s weighting in the index is capped. Weightings are determined by the number of publicly traded shares available.

We’ve examined the available data on the funds’ composition. There’s nothing particularly striking about these offerings; they’re straightforward index funds. But they do offer the industry’s lowest costs. The US market and large-cap funds charge expense ratios of just 0.05 percent while the small- and mid-cap offerings charge just 0.12 percent.

The remaining new funds apply the same indexing methodology and are mostly unremarkable. These offerings focus on economic sectors and charge an extremely low 0.19 percent expense ratio. The funds are:

• Focus Morningstar Technology Index ETF (NYSE: FTQ)
• Focus Morningstar Utilities Index ETF (NYSE: FUI)
• Focus Morningstar Basic Materials Index ETF (NYSE: FBM)
• Focus Morningstar Communication Services Index ETF (NYSE: FCQ)
• Focus Morningstar Consumer Cyclical Index ETF (NYSE: FCL)
• Focus Morningstar Consumer Defensive Index ETF (NYSE: FCD)
• Focus Morningstar Energy Index ETF (NYSE: FEG)
• Focus Morningstar Financial Services Index ETF (NYSE: FFL)
• Focus Morningstar Health Care Index ETF (NYSE: FHC)
• Focus Morningstar Industrials Index ETF (NYSE: FIL)
• Focus Morningstar Real Estate Index ETF (NYSE: FRL)

Market commentators have said the new funds will struggle to draw investors given FocusShares history of closures. I don’t subscribe to that view. These funds’ low expenses and broad coverage make them ideal for investors running allocation strategies. Additionally, Scottrade is offering these ETFs under its commission-free trading program. With 2 million clients and hundreds of financial advisors on its platform, it shouldn’t be a tough sell.

However, these funds already trade under a cloud of uncertainty. Although volume was low on the first day of trading–typical for a new ETF–everything proceeded normally. On the second day of trading though, some of the new funds experienced what could be charitably characterized as “glitches” that actually amount to “mini flash crashes.”

Shortly after the market opened on March 31, prices plummeted for 10 of the new funds–some of which lost as much as 98 percent of their value. The apparent cause was a “fat finger” trade; intended limit orders were marked as market orders, resulting in immediate executions. This error caused the health care ETF to fall from $25.33 to 60 cents and the real estate fund to trade down to $1.48.

The erroneous trades, which occurred over a period of two minutes, were cancelled by the exchange. No investors lost or made any money, except of course for the errant trader.

Incidents such as these are why I advise readers to wait for volume to pick up in new funds before investing. If the average volume in these funds had reached thousands of shares rather than hundreds, the bad orders–which involved just hundreds of shares–would have been absorbed by the market.

Furthermore, the current program of circuit breakers instituted in the wake of last May’s Flash Crash should be expanded. Although most ETFs are currently covered under the program, new ETFs issued since the program was initiated must be explicitly added to the list of covered securities. What’s more, new ETFs are most adversely affected by errant trades.

These problems shouldn’t deter ETF investors, nor should they reflect poorly on FocusShares’ new products. But I couldn’t pass up the opportunity to demonstrate the dangers of investing in new ETFs.

What’s New

BlackRock launched the two new funds under its iconic iShares brand.

IShares High Dividend Equity (NYSE: HDV) will track the Morningstar Dividend Yield Focus index, a benchmark that tracks 75 high-yielding companies. This fund is a nice play on the surging interest in dividend-focused ETFs. But the fund has come late to the party and a number of dividend-focused ETFs are already on the market. Nonetheless, the iShares brand is powerful and I have little doubt that this fund will have staying power.

IShares MSCI China Index Fund (NYSE: MCHI) is iShares’ fourth China-focused fund, but its first broad China fund that tracks an MSCI index. The MSCI index captures a broader swathe of the Chinese market–it’s designed to represent 85 percent of the investable universe–and the new fund represents a far more diversified play China’s economic growth.