The boom in exchange-traded funds ran smack into the implosion of the global financial markets.

There are now 721 ETFs with $478 billion in assets, according to the Investment Company Institute. Although that's more than three times as many funds as three years ago and new ETFs continue to debut, their total assets decreased 16 percent in the past 12 months.

Poor results of stock indexes and sectors that a majority of ETFs are built to mirror have had a chilling effect. After all, no investor wants to mirror disaster. A number of funds have been liquidated or had their introductions postponed until the markets show signs of improvement.

The top performers in the ETF pack have been those that shorted — or bet against — their particular index or sector, as well as those that focused entirely on Treasuries. For example, Proshares UltraShort Technology (REW) rose 63 percent over the past 12 months and the iShares Barclays 20-plus Year Treasury Bond (TLT) was up 36 percent.

"I think we're in for a bit of a pause in the ETF industry in which we're going to see some consolidation among the funds," said Scott Burns, director of ETF analysis for Morningstar Inc. in Chicago. "In addition, some of the weaker offerings that didn't really whet investor appetites will close."

Holding baskets of stocks or bonds as mutual funds do, ETFs replicate market indexes or sectors and have a goal of low-cost diversification. Traded on an exchange, they can be bought and sold during market hours, unlike a mutual fund in which you trade shares at the end of the day.

Important factors behind the ETF boom are their annual fees generally lower than those of mutual funds and also their greater tax efficiency. That makes them superior for investing a large amount at once, but doesn't work quite as well with gradual investment.

"ETFs are not as effective if you're trying to dollar-cost average into the market for a specific amount each month," said Jim Ross, senior managing director for State Street Global Advisors in Boston. "Whenever you're buying and selling an ETF you create some kind of commission, so small trades do make ETFs a little more expensive."

While the myriad ETF specialties could prove daunting to an investor assembling a portfolio, it is a basic strength of the vehicle.

"The overall state of the ETF industry is a lot better than the state of the traditional mutual fund industry, in the sense the number of offerings is increasing and providing more opportunities for investors to diversify their portfolios," said Ron DeLegge, editor of ETFguide.com in San Diego. "ETFs can be bought in flavours not available in traditional mutual funds, such as commodities, gold, currency and real estate."