Many investors over the past couple of months, sensing volatility in the market, have been rebalancing their portfolios away from stocks and toward fixed income. Last week, we saw people stepping up and buying preferred stocks as well.

Interesting enough, finding a good list, database, or general resource for preferred stocks is not so easy. (Good idea for a start-up, anyone?)

So, when I came across investingfromtheright's blog post yesterday about a new-ish Exchange Traded Fund (ETF) from PowerShares called PowerShares Financial Preferred Portfolio (AMEX: PGF), it piqued my interest.

From the blog post, I learned the following:

After rising more or less in line with overall market volume for years, there has been a noticeable surge since the spring in the relative turnover of selected exchange-traded funds (ETFs).

For the SPDR Trust Series 1 ETF (AMEX: SPY), which tracks the S&P 500 index, the average daily volume (ADV) compared to New York Stock Exchange Composite ADV increased from 6.1% in April to 16.8% last month. For the PowerShares QQQ ETF (NASDAQ: QQQQ), which emulates the Nasdaq-100 index, the numbers went from 6.3% to 14.1%. For the iShares Russell 2000 Index Fund ETF (AMEX: IWM), which mirrors the small cap benchmark, relative turnover rose from 3.4% to 6.7%.

Although it's not clear whether the activity was related to hedging or outright position-taking -- or both -- the sharp increase in activity suggests that there has been an important change in the underlying dynamic of the U.S. equity market. If so, it raises some interesting questions.

Could this be a sign, for example, that the influence of hedge funds, proprietary trading desks, and other speculative operators is expanding dramatically? Are investors of all stripes becoming increasingly focused on ETFs as an investing vehicle? Does this emphasis on trading bundles of shares mean that more individual issues are "mispriced"?

Whatever the case, this is a trend worth paying attention to.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.

The Wall Street Journal reports that PowerShares Capital Management LLC (subscription required) has "filed with the Securities and Exchange Commission for three new exchange-traded funds that will hold different combinations of other PowerShares stock and bond ETFs."

Here's why this is good for small investors: ETFs with their low expense ratios are a great product, and diversified portfolios of ETFs allow small investors to put together retirement portfolios easily, without the help of an expensive financial adviser.

But there's a problem: If you have a portfolio of $5,000 and divide it up among ten funds and have to pay a commission of $10 per trade, that works out to a front-load of 2% -- then another 2% when you sell. Unless you have a fairly sizable chunk of money to invest, buying multiple ETFs isn't very cost savvy.

Funds of ETFs will be a practical option for a lot of retail investors and could take market share from two groups that deserve to lose market share: financial advisers and big mutual fund companies.