I may be going out on a limb here, but I'm not convinced the world needs 39 exchange-traded index funds devoted to healthcare stocks.

These are heady days for ETFs, those index funds that trade on the stock market just like any other share. Fund sponsors are launching new ETFs by the fistful, hoping to snag a slice of this fast-growing market.

This, of course, means more choice for investors. But you've got to wonder: Could the abundance of fund choices drive out the weaker players — and could investors end up getting hurt?

RUSHING TO MARKET

There are now some 500 ETFs, with more than 300 additional funds in registration. "It's a huge land grab," says Jim Wiandt, publisher of IndexUniverse.com. "Companies are turning out all these thinly sliced sector funds, in the hope of hitting something that really resonates."

According to Morningstar, there are 32 ETFs focused on technology; 35 investing in natural resources; and 22 devoted to the financial sector. To be sure, each fund typically has a slightly different mandate. Take those 39 healthcare funds. The list includes funds devoted to ophthalmology shares, cardiology-device companies and European drug stocks, as well as a fund that uses complicated investment techniques so that it climbs when healthcare stocks fall.

Is there enough investor support for all of these narrowly focused funds? Wiandt figures a fund's long-term existence isn't secure until it reaches $200 million in assets, because the fees collected by the fund may not be enough to cover fund-management costs, legal expenses, listing fees, shareholder reports and so on. Today, more than 60 percent of ETFs fall below that threshold. In fact, average fund assets have shrunk in recent years, as new-fund launches have outstripped the growth in fund assets.

Because ETFs are so new, we haven't seen many closings. But it has happened. Deutsche Bank pulled the plug on its country baskets in the late 1990s, Barclays Global Investors closed three iShares funds in 2002, and ETF Advisors' bond funds disappeared in 2003. Meanwhile, State Street has changed the strategy on one fund and closed three others.

SEARCHING FOR SURVIVORS

None of this much matters if you are a trader. If one health-care fund disappears, you can always swap into another. But what if you're a long-term investor looking to profit from ETFs' legendary tax efficiency and low annual expenses? Frankly, I am not sure why you would be interested in many of the newer funds, with their narrow investment focus.

But suppose you want to make a long-term bet on technology. If your tech fund closes and you have to jump to another fund, you will face trading costs and possibly a steep tax bill. Even if your tech fund soldiers on, you could still suffer. A fund with few assets is unlikely to trim its annual expenses, something that's desperately needed with many of the newer ETFs. Some 70 percent of the funds launched since year end 2004 levy annual expenses of 0.5 percent a year or more. That's steep for an index fund.

My advice: Before you buy an ETF, make sure it has a decent amount of assets, preferably above $200 million. I would also favor ETFs from firms that have established themselves as leading ETF sponsors, such as Barclays, State Street and Vanguard Group. Presumably, these firms don't want to sully their reputation by closing a truckload of funds.

Most important, favor the lowest-cost funds in each category, because these will likely prove most popular over the long run. To find low-cost funds, try morningstar.com.

"You need to recognize that there are a lot of these crazy niche funds and you want to avoid them like the plague," says Russel Kinnel, Morningstar's director of fund research. "You want to look for low-cost, well-diversified funds. If you start by screening for the lowest-cost funds, you should end up with funds that will be around for a good long while."