As with just about every other facet of the money management biz, the exchange-traded fund (ETF) industry is certainly guilty of churning out products that virtually nobody needs.

Case in point: the iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI), which debuted last October amid much hype about the "hot" Chinese economy. Beyond coming to market with timing that only a broker could love, this puppy invests in a svelte bogey of just 25 stocks, one that's only been around since 2001 at that.

Other dubious ETFs include offerings that invest in ever-popular (but always highly volatile) gold bullion, business-to-business Internet companies (talk about last year's model), and something called "high yield dividend achievers" (whatever those may be).

All of that said, there are certainly plenty of worthy ETF contenders out there; you just have to know where to look. To that end, I write regularly about both ETFs and plain-vanilla index funds in the Fool's Champion Funds newsletter service.

So, just what separates ETF champs from the legions of also-rans? Good question.

Generally speaking, I'm a fan of ETFs that track venerable indexes such as the S&P 500 -- which provides exposure to such blue-chip bellwethers as Microsoft (NASDAQ:MSFT), General Electric (NYSE:GE), Citigroup (NYSE:C), and Wal-Mart (NYSE:WMT) -- and the Russell 2000, a mostly small-cap index that also makes room for the mid-cap likes of Goodyear (NYSE:GT), Crown Holdings (NYSE:CCK), and industrial-materials concern Terex, too.

The bottom line: For reasons I explain here, even the best ETFs aren't for everyone. And indeed, as outlined above, some ETFs aren't for anyone.

Next up: ETFs -- How to Use Them Intelligently

This article was originally published on Jan. 7, 2005.

Shannon Zimmerman separates the fund industry's wheat from its chaff in his Champion Funds newsletter service. Take a free test-drive. Shannon owns no securities mentioned.