Equity markets have taken a wild ride this past year as everything from an unimaginable earthquake in Japan to a looming debt crisis in Europe have taken a toll on investor confidence. As 2011 draws to a close, many are left scratching their heads in confusion and uncertainty, given the predominantly gloomy economic outlook that many are expecting for the New Year. Financial behemoth UBS (UBS) has issued its economic outlook for 2012 along with a set of conservative investment principles that are sure to please the defensive-minded crowd worrisome of continuing economic turmoil.

Within the detailed 28-page report, UBS Wealth Management Research emphasizes the importance of staying diversified on all fronts given the overhanging debt drama on both sides of the Atlantic. Volatility is expected to remain abundant in 2012 as the eurozone struggles to restore stability in its debt burdened member nations, while the political gridlock at home

Interest in achieving fixed income exposure through exchange-traded funds has been a hot topic in recent years, with some advisors expressing serious concerns over the potential shortcomings in bond ETFs while others have fully embraced the efficiencies of the exchange-traded structure.

The sheer size of the bond ETF space–in terms of both AUM and number of products–has increased dramatically since 2005. But the activity in the space has not been limited to pure growth in assets; a number of interesting innovations in the fixed income ETF arena have helped to address many of the issues that have been cited as potential concerns to investors and to enhance the overall experience of these products. Bond ETFs still aren’t perfect; many of the more popular products that are difficult to replicate exactly, exhibit certain biases that may be undesirable in certain environments and can create for recurring “front-running” opportunities that can erode

The impressive pace of expansion in the ETF industry over the last several years has been well documented; continuous product development has resulted in the launch of more than 250 so far in 2011, and there are now more than 1,300 names in the ETF lineup. But while the depth of the ETF space has increased, the industry remains quite top-heavy. A relatively small number of products accounts for the lion’s share of total assets.

Most of the largest ETFs are also among the oldest. Their impressive asset bases are perhaps more attributable to their seniority than the appeal of the underlying methodologies. In fact, impressive innovation in the industry has given investors plenty of alternatives to the “super tickers” that dominate the space.

The largest ETFs have become so popular for a reason. They generally offer cheap, liquid exposure to core asset classes. But for investors willing to dig