On March 21, 1924 three Boston businessmen pooled together $50,000 to form a company called the Massachusetts Investors Trust. The purpose of the company — to invest in the roaring 1920s stock market boom. 

These three men unwittingly gave birth to a financial revolution. In fact, in the ensuing 80 years, their invention — the mutual fund — has come to dominate the retail investing landscape.

As of 2007, U.S. mutual fund assets had grown from that $50,000 seed invested in a single fund into nearly $12.5 trillion invested across more than 8,000 funds. Over 50 million American households now own mutual funds, making them far and away the most popular and common means of participating in the stock market.

Yet despite the tremendous success of the industry, many mutual fund executives are starting to get nervous. Why? Well, after years of unfettered and unchallenged dominance of the retail investing landscape, there's a new kid on the block — a new asset class that threatens to challenge the pre-eminence of the mutual fund. 

And the mutual fund industry is vulnerable to that competition. One reason funds have become so popular is that they've been the only game in town for millions of Americans. Many 401(K) accounts and other retirement plans mandate investments into a narrow selection of funds. In addition, mutual funds have been, until recently, the easiest way to diversify a portfolio among a broad basket of different stocks.

Mutual funds have taken full advantage of this near monopoly. Fees charged for managing that $12 trillion pie have been creeping up. This has been true even since the advent of no-load funds in the 1970s. From 1990 to 2002, for example, the Investment Company Institute reports that the average mutual fund expense ratio jumped from 1.47% to 1.64%.

And most investors are keenly aware of several other drawbacks of traditional mutual funds. For one, they're only priced once per day, so you can't buy and sell them as freely as you might like. In addition, many mutual funds also have steep minimum investment requirements, making them impractical for some investors.

A New Kind of Fund
So, what exactly is this revolutionary new investment that's challenging the mutual fund industry's dominance? It's called an exchange-traded fund (ETF). These unique financial instruments are essentially passive funds linked to a specific benchmark — similar to traditional index funds — that allow investors to purchase a basket of securities in a single transaction. However, unlike conventional funds, ETFs are actively traded on the major exchanges just like common stocks, meaning they can be bought, sold, and even shorted throughout the day. 

From a humble start in the early 1990s, the ETF business has exploded, particularly over the past several years. From 1993 through 2003, approximately 134 new ETFs were launched — a little more than one per month. However, these cost-efficient investment vehicles have finally begun to catch on, and 290 new ETFs hit the market in 2007 alone — more than one per trading day. 

Of course, the reason giant investment houses like Merrill Lynch (NYSE: MER) and Vanguard continue to introduce new funds is simple — retail demand has been insatiable lately, and investors are pouring a fortune into these funds. According to the Investment Company Institute, U.S. investors sunk more than $100 billion into new ETFs last year — bringing the industry-wide total to roughly $600 billion.

ETFs offer a number of advantages over competing products, and in today's report we'll spell out exactly what those benefits are. And for those looking to cash in on the ETF boom, we'll also take a closer look at several of our favorite funds. 

ETFs boast several major advantages over mutual funds and common stocks. Here's a brief review:

Diversification — Each ETF represents an interest in an underlying basket of stocks or bonds. Some are even tied to indexes representing several thousand securities, helping investors gain broad diversification in one simple transaction. 

Flexibility — Given the breadth of choices now available, ETFs give hands-on investors a way to maintain pinpoint control over their asset allocation. For those that want to invest in a single country (like China), a certain sector (like biotechnology), or even commodities (like gold), ETFs are the best way to nimbly target specific areas of the market. With so many styles, strategies, and objectives to choose from, ETFs offer something for almost every investor.

Low Cost — Unlike traditional mutual and index funds, ETFs can be purchased with zero front or back-end sales loads. In addition, because they are not actively managed, most ETFs charge minimal annual expenses below 0.5%, making them far more affordable than most other diversified investment vehicles. Some even have razor-thin annual expenses of 0.1% or less.

Liquidity — Unlike traditional funds, ETFs can be bought and sold throughout the trading day and can even be purchased on margin. This gives investors greater flexibility when entering and exiting positions, and it also helps them avoid the late-trading and market-timing scandals that have plagued the mutual fund industry in recent years. 

Tax-Efficiency — Whereas many traditional funds are actively engaged in buying and selling portfolio holdings, most ETFs tend to remain fairly static — tracking a fixed index. As a result, ETFs typically have very low turnover and thus trigger minimal capital gains taxes, making them highly tax efficient.

With all of these benefits in mind, nearly every investor could benefit by holding a position in one or more of today's leading ETFs. The main question is, which ETFs are worth your consideration. In today's report you'll find an extensive list of many of today's most popular U.S.-traded ETFs. And in the analysis that follows, we'll bring you a detailed look at a few of our favorite funds. 

(2.)  Extensive List of Available ETFs

(3.) PowerShares Dynamic Large-Cap Growth (AMEX: PWB )

In recent years, the large-cap growth corner of the market has struggled to keep pace with other asset classes. In fact, after falling out of favor in 2000, large-cap growth was the single worst-performing group for several straight years. However, the tide has begun to turn, with large, fast-growing companies gaining the upper hand in 2006 and 2007 — a pattern we believe will continue in the years ahead.

The market is nothing if not cyclical, and we think the time has come for large-cap growth companies like Schlumberger (NYSE: SLB ), Oracle (Nasdaq: ORCL), Apple (Nasdaq: AAPL), and Cisco (Nasdaq: CSCO) — all top holdings of PWB — to reassert their dominance. When that happens, the PowerShares Dynamic Large-Cap Growth ETF should help lead the charge. 

We should point out that while the index's long-term returns are compelling, PWB itself is still relatively new and unproven. Furthermore, the fund's expenses are somewhat steep.  

Still, despite these concerns, the unique methodology behind the Intellidex should give this fund a very good chance of outperforming its market-cap weighted rivals — most of which are tied to the fortunes of a handful of huge mega-cap stocks. 

In short, large-cap growth stocks have begun to look more and more favorable in recent years, and as money continues to flow into this sector, PWB should prove its meddle and post market-beating gains.  

(4.)  Claymore/Zacks Yield Hog Fund (AMEX: CVY)

Investment firm Claymore Securities launched this humorously named exchange-traded fund in late 2006 with a simple mission — to provide double the yield of other dividend-paying ETFs. Since most others in its category carry yields of around 3%, this relatively new Yield Hog ETF is meeting its goal, as it yields close to 6%.

In addition to providing a solid yield, the fund is also primed to deliver superior total returns. In fact, one of the goals of the Zacks Yield Hog Index is to outperform the Dow Jones U.S. Select Dividend Index, which is comprised of 100 of the country's top dividend payers, including stalwarts like Altria (NYSE: MO) and Bank of America (NYSE: BAC).

While the fund is still largely untested, Claymore has back-tested the two indices, and the Yield Hog Index would have outperformed the Dow Jones U.S. Select Dividend Index over the past three-year (+6.6% vs. +5.6%) and five-year (+18.0% vs. +12.6%) time periods. Of course, past performance is no guarantee of future returns, but the test does augur well for the fund.

Bottom line — the Claymore/Zacks Yield Hog Fund offers a quick and easy way for income-oriented investors to diversify their portfolio among more than 130 different securities pulled from a wide range of sectors within the income universe. Yield-focused income investors, or even growth investors seeking a counterbalance to the aggressive portion of their portfolio will find much to like about CVY.

(5.)  iShares MSCI EAFE (NYSE: EFA)

Until now, we have focused almost exclusively ETFs tracking domestic stocks. However, there are numerous reasons for investors to look beyond U.S. borders for opportunities. To begin, stocks trading on exchanges here in the United States represent less than half of the world's total market capitalization — meaning trillions of dollars worth of stock market value is represented by companies based in foreign markets. And to acquire a stake in global leaders like Germany's Bayer, Japan's Toyota, or Finland's Nokia, investors must set their sights overseas.

If you're interested in subscribing to The ETF Authority but would like to find out more about this publication first, then please read on... 

The mission of The ETF Authority is to help our readers identify today's most profitable ETFs and closed-end funds.

We think it's important to stress just how much content and value is included with a subscription to our ETF Authority newsletter.  It's more than just a newsletter — it's a comprehensive investing service aimed at helping you make the most informed decisions for your portfolio.

Here's everything you'll get for the low price of just $297 . . .

An Annual  Subscription to our ETF Authority Newsletter — Each monthly issue is loaded with fresh new ETF and closed-end fund investing ideas as well as continued guidance on funds we've profiled in previous issues. We also include feature articles, profiles of today's newest funds, and a variety of other material designed to help you become a better investor and to steer you toward today's leading ETFs.

Mid-Month Updates — In the middle of each month we'll summarize the market's recent activity and will tell you in plain, simple English how it affects your ETF investments. We will not only tell you how to protect your capital, but we'll also uncover some great new opportunities that could help you generate above-average returns in today's market environment.

Fund of the Month — Each month our research staff will bring you an in-depth profile of one of the most attractive ETFs on the market.

"New Fund Alert" — In each issue we'll profile some of the most promising new funds to hit the market in recent weeks. Many our readers use this list to take immediate advantage of some of today's most innovative and popular new ETFs.

Subscribers-Only Web Site Content — Your subscription comes with complete access to all of our ETF Authority web site content, including easy access to current and past issues, mid-month updates, portfolios, a "watch list" of potential new additions, access to our proprietary "ETF Composite Score" ranking system, and a host of valuable educational materials.

Model Portfolios — You'll also have access to two model portfolios that are chock full of some of today's most profitable ETFs . . .

Our "Buy-and-Hold" Portfolio includes superior ETFs and closed-end funds that are expected to deliver strong gains over the next 3-5 years.

Our "Sector Trading" Portfolio includes securities that are well positioned to deliver market-beating gains over the next six to twelve months.

An Unconditional 30-Day Full Refund Guarantee — You can cancel your subscription at any time by clicking on the easy unsubscribe link we provide at the bottom of every newsletter we send you. Take 30 days to test our ETF Authority newsletter out. If you decide to cancel anytime within those first 30 days, then we'll return your entire subscription fee — every single cent. You'll also get to keep all of our in-depth research reports as a special thank-you gift just for trying out the newsletter. You truly have nothing to lose.