Is this the start of the ETF revolution or a toe in the water?

Matt - I also took the PIMCO story to be a huge one. Anything Bill Gross does (Heather, can we get him on the line please?) is going to attract some attention. And there has long been a debate as to whether ETFs might really take the leap into getting some mega market share of the mutual fund business. Up until now, those who have said that ETFs are going to take over the world have been on the radical fringe, but PIMCO's announcement seems to be a step in that direction.

The 60-thousand (or is that billion?)-dollar question is whether this is a serious foray from PIMCO or a getting-to-know-you flirtation.

I ask this because Matt says, "Could folks like Fidelity, American Funds and others be next?"

Ahem, Matt - Fidelity already HAS an ETF, unless their Nasdaq Composite ETF (NasdaqGM: ONEQ) doesn't count. And at $100 million in assets at a firm with tens of billions in index funds and HUNDREDS of billions in active, clearly it's SUCH a toe in the water that Matt HAS NOT counted it.

At first blush, it does appear that the PIMCO plans are much more than that, but time will tell. It's an exciting time, because despite the fact that our good friend Jason Zweig has given ETFs a bit of a diss in his WSJ column (and I quote his LEDE, "Sooner or later, Wall Street turns every good idea into a bad one."), ETFs in whatever space they're appearing ARE by and large going to be a net positive for investors, whether they're smart index investors or the (Jason might say) dumber active type. Why? Because as long as you're not constantly clicking the buy and sell buttons at your broker, generally speaking, ETFs are less expensive and more tax efficient (and more tax democratic) than traditional mutual funds.

There's a www.nakedshorts.com pan of the Zweig piece as well for you Greg Newton fans out there.

I guess the issue I'd take with Jason is saying this is all about ETFs. Really it's NOT. It's just ETFs expanding into the rest of the (mostly crappy) financial services market. Mutual funds have had mainly crappy options SINCE INCEPTION. I guess that's the big difference. ETF's development history is the opposite. I just think that there's some confusion of the structure with what people are putting into it. And increasingly, it appears that ETFs will look more like the active mutual fund business.

Remember Jason, it HAS NOT been an unmitigated disaster. The big-time asset flows into index products HAVE made mutual funds (somewhat) better, as fees HAVE come down and funds HAVE become more diversified - meaning the active fund industry looks a lot more like the index fund business than it used to, even as volatility (and expenses) have moved up in the more thinly sliced part of the index business that Jason pans.

But I digress wildly. I'm having way too much fun being back here after the long layoff ... stay with me.

PIMCO DOES look big to me, and I do feel a significant move into the ETF structure coming on from outside of the traditional index world. It will take a couple of big guys getting serious about it (and I've always been pessimistic about it for reasons relating to distribution and cannibalization). So we'll wait and we'll watch.

For those who didn't read it, there's also a very nice piece on WisdomTree on the site from our new contributor, Dan Serra. It sheds some very interesting light on that end of the ETF business.

The Vanguard story is a good one too. Finally McNabb will actually be the main man in Valley Forge. Seems like they made that announcement YEARS ago. I guess it IS years ago if you're going by ETF years.

Finally - I'm working on an ETFR story looking at the massive short volumes in some of the ETFs and how the SEC's crackdown on naked shorts in financials is affecting that activity. Fun stuff, as often ETFs are the sort of canaries in the coal mine of the markets.